View:
As filed with the Securities and Exchange Commission
on August 12, 1996
Registration No. 333-07899
=================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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Continental Airlines, Inc.
(Exact name of registrant as specified in its charter)
Delaware 74-2099724
(State or other (I.R.S. employer
jurisdiction of incorporation identification number)
or organization)
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
(713) 834-2950
(Address, including zip code,
and telephone number, including area code,
of registrant's principal executive offices)
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Jeffery A. Smisek, Esq.
Senior Vice President, General Counsel and Secretary
Continental Airlines, Inc.
2929 Allen Parkway, Suite 2010
Houston, Texas 77019
(713) 834-2950
(Name, address, including zip code,
and telephone number, including area code,
of agent for service)
Copies of correspondence to:
Michael L. Ryan, Esq.
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date
of this Registration Statement.
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If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans,
please check the following box: ( )
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than the securities
offered only in connection with dividend or interest reinvestment
plans, check the following box. ( X )
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. ( )
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
( )
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. ( )
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CALCULATION OF REGISTRATION FEE
- - ------------------------------------------------------------------------------
TITLE OF PROPOSED PROPOSED
EACH CLASS MAXIMUM MAXIMUM AMOUNT
OF SECURITIES AMOUNT OFFERING AGGREGATE OF
TO BE TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED (1) UNIT (2) PRICE (2) FEE
- - ------------ ------------- --------- --------- ------------
6-3/4% Convertible
Subordinated Notes
of Continental
Airlines, Inc.(3) $7,675,000 100% $7,675,000 $2,647
- - ------------------------------------------------------------------------------
Class B common
stock of
Continental
Airlines, Inc. (4) -- -- --
- - ------------------------------------------------------------------------------
Total $7,675,000 100% $7,675,000 $2,647
- - ------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(i) of the Securities Act.
(2) Exclusive of accrued interest, if any.
(3) The Company previously registered an aggregate amount of $192,975,000 of
the Convertible Subordinated Notes, for which the applicable fee was paid.
(4) Such indeterminate number of shares of Continental Airlines, Inc. Class B
common stock as may be issuable upon conversion of the Convertible
Subordinated Notes registered hereunder, including such shares as may be
issuable pursuant to anti-dilution adjustments.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission.
These securities may not be sold nor may offers to buy be
accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any
sale of these securities in any State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION-DATED AUGUST 12, 1996
PROSPECTUS $200,650,000
Continental Airlines, Inc.
6-3/4% Convertible Subordinated Notes Due April 15, 2006
This Prospectus relates to the offering for resale of up to
$200,650,000 aggregate principal amount of the 6-3/4% Convertible
Subordinated Notes in registered form as of July 10, 1996 (the
"Registered Notes") issued under an Indenture, dated as of March
26, 1996, as supplemented by the First Supplemental Indenture,
dated as of August 6, 1996 (the "Indenture"), between Continental
Airlines, Inc., a Delaware corporation ("Continental" or the
"Company"), and Bankers Trust Company, as Trustee (the
"Trustee"), and the shares of Class B common stock, par value
$.01 per share ("Class B common stock"), of the Company issuable
upon conversion of the Registered Notes. The 6-3/4% Convertible
Subordinated Notes in registered form were originally issued and
sold in an aggregate principal amount of $192,975,000, together
with $37,025,000 of the Company's 6-3/4% Convertible Subordinated
Notes in bearer form (the "Bearer Notes") issued under the
Indenture on March 26, 1996, to the Underwriter (as defined
herein, see "Selling Holders") and were simultaneously sold by
the Underwriter in transactions exempt from the registration
requirements of the Securities Act of 1933, as amended (the
"Securities Act"), in the United States to persons reasonably
believed by the Underwriter to be qualified institutional buyers
as defined in Rule 144A under the Securities Act and outside the
United States to non-U.S. persons in offshore transactions in
reliance on Regulation S under the Securities Act. As of July
10, 1996, there were $29,350,000 aggregate principal amount of
Bearer Notes outstanding. The Registered Notes and the Bearer
Notes are collectively referred to herein as the "Notes". The
Bearer Notes, and the shares of Class B common stock issuable
upon conversion of the Bearer Notes, are not being offered
pursuant to this Prospectus.
The Registered Notes and the Class B common stock issuable
upon conversion of the Registered Notes (the "Offered
Securities") may be offered and sold from time to time by the
holders named herein or by their transferees, pledgees, donees or
their successors (collectively, the "Selling Holders") pursuant
to this Prospectus. The Offered Securities may be sold by the
Selling Holders from time to time directly to purchasers or
through agents, underwriters or dealers. See "Plan of
Distribution" and "Selling Holders." If required, the names of
any such underwriters, dealers or agents involved in the sale of
the Offered Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will
be set forth in an accompanying supplement to this Prospectus
(the "Prospectus Supplement"). The Selling Holders will receive
all of the net proceeds from the sale of the Offered Securities
and will pay all underwriting discounts and selling commissions,
if any, applicable to any such sale. The Company is responsible
for payment of all other expenses incident to the offer and sale
of the Offered Securities. The Selling Holders and any broker-
dealers, agents or underwriters that participate in the
distribution of the Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act, and any
commission received by them and any profit on the resale of the
Offered Securities purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
See "Plan of Distribution" for a description of indemnification
arrangements.
The Notes are convertible into shares of Class B common
stock of Continental at any time prior to the close of business
on the maturity date, unless previously redeemed or repurchased,
at a conversion price of $30.195 per share (equivalent to a
conversion rate of 33.118 shares per $1,000 principal amount of
Notes), subject to adjustment in certain events. Such conversion
price and conversion rate have been adjusted for the 2-for-1
stock split announced by Continental on June 26, 1996 and payable
on July 16, 1996 to holders of record of its Class B common stock
and Class A common stock, par value of $.01 per share (the "Class
A common stock"), on July 2, 1996. On August 8, 1996, the last
reported sale price of the Company's Class B common stock, which
is listed on the New York Stock Exchange (the "NYSE") under the
symbol "CAI.B", was $25.25 per share, which price gives effect to
the stock split.
Interest on the Notes is payable on April 15 and October 15
of each year, commencing on October 15, 1996. Principal and
interest payments will be made without any deduction for U.S.
withholding taxes, except to the extent described under
"Description of Notes-Payment of Additional Amounts". The Notes
are redeemable (a) in the event of certain developments involving
U.S. withholding taxes or certification requirements (as
described under "Description of Notes-Redemption-Redemption for
Taxation Reasons"), at a redemption price of 100% of the
principal amount of the Notes to be redeemed, plus accrued
interest to the redemption date, and (b) at the option of the
Company, on or after April 15, 1999, in whole or in part, at the
redemption prices set forth herein, plus accrued interest to the
redemption date. See "Description of Notes-Redemption". The
Notes are not entitled to any sinking fund. The Notes will
mature on April 15, 2006.
In the event of a Change in Control (as defined), each
holder of Notes may require the Company to repurchase its Notes,
in whole or in part, for cash or, at the Company's option, Class
B common stock (valued at 95% of the average closing prices for
the five trading days immediately preceding and including the
third trading day prior to the repurchase date), at a repurchase
price of 100% of the principal amount of Notes to be repurchased,
plus accrued interest to the repurchase date.
The Notes are unsecured obligations subordinated in right of
payment to all existing and future Senior Indebtedness (as
defined) of the Company and are effectively subordinated in right
of payment to all indebtedness and other liabilities of the
Company's subsidiaries. As of June 30, 1996, the aggregate
amount of outstanding Senior Indebtedness of the Company was
approximately $1.5 billion. The Indenture does not restrict the
Company or its subsidiaries from incurring additional Senior
Indebtedness or other indebtedness. See "Description of Notes-
Subordination".
Prospective investors should carefully consider the matters
discussed under the caption "Risk Factors" commencing on page 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1996.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements
and other information may be inspected and copied at the
following public reference facilities maintained by the
Commission: Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549; Suite 1300, Seven World Trade Center, New
York, New York 10048; and The Citicorp Center, Suite 1400, 500
West Madison Street, Chicago, Illinois 60661. Copies of such
material may also be obtained from the Public Reference Section
of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed
rates. The Commission maintains a Web site at http://www.sec.gov
containing reports, proxy and information statements and other
information regarding registrants that file electronically with
the Commission, including the Company. In addition, reports,
proxy statements and other information concerning Continental may
be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005.
Continental is the successor to Continental Airlines
Holdings, Inc. ("Holdings"), which merged with and into
Continental on April 27, 1993. Holdings had also been subject to
the informational requirements of the Exchange Act.
This Prospectus constitutes a part of a registration
statement on Form S-3 (together with all amendments and exhibits,
the "Registration Statement") filed by Continental with the
Commission under the Securities Act with respect to the
securities offered hereby. This Prospectus omits certain of the
information contained in the Registration Statement, and
reference is hereby made to the Registration Statement for
further information with respect to Continental and Holdings and
the securities offered hereby. Although statements concerning
and summaries of certain documents are included herein, reference
is made to the copy of each such document filed as an exhibit to
the Registration Statement or otherwise filed with the
Commission. These documents may be inspected without charge at
the office of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies may be obtained
at fees and charges prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission (File No.
0-9781) are hereby incorporated by reference in this Prospectus:
(i) Continental's Annual Report on Form 10-K for the year ended
December 31, 1995 (as amended by Forms 10-K/A1 and 10-K/A2 filed
on March 8, 1996 and April 10, 1996, respectively), (ii) the
description of Class B common stock contained in Continental's
registration statement (Registration No. 0-21542) on Form 8-A,
and any amendment or report filed for the purpose of updating
such description, (iii) Continental's Quarterly Reports on Form
10-Q for the quarters ended March 31, 1996 and June 30, 1996 and
(iv) Continental's Current Reports on Form 8-K, filed on January
31, 1996, March 26, 1996, May 7, 1996, June 27, 1996 and July 22,
1996.
All reports and any definitive proxy or information
statements filed by Continental pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering of the
securities offered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated herein by
reference, or contained in this Prospectus, shall be deemed to be
modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute
a part of this Prospectus.
Continental will provide without charge to each person to
whom this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all documents
incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by
reference into such documents). Requests for such documents
should be directed to Continental Airlines, Inc., 2929 Allen
Parkway, Suite 2010, Houston, Texas 77019, Attention: Secretary,
telephone (713) 834-2950.
PROSPECTUS SUMMARY
The following summary information is qualified in its
entirety by the detailed information and financial statements
(including the notes thereto) appearing elsewhere or incorporated
by reference in this Prospectus. Prospective investors should
consider carefully the matters discussed under the caption "Risk
Factors." Unless otherwise stated or unless the context
otherwise requires, references to "Continental" or the "Company"
include Continental Airlines, Inc. and its predecessors and
subsidiaries. All route, fleet, traffic and similar information
appearing in this Prospectus is as of or for the period ended
July 31, 1996, unless otherwise stated herein.
THE COMPANY
Continental Airlines, Inc. is a major United States air
carrier engaged in the business of transporting passengers, cargo
and mail. Continental is the fifth largest United States airline
(as measured by revenue passenger miles in the first six months
of 1996) and, together with its wholly owned subsidiary,
Continental Express, Inc. ("Express"), and its 91%-indirectly
owned subsidiary, Continental Micronesia, Inc. ("CMI"), serves
190 airports worldwide.
The Company operates its route system primarily through
domestic hubs at Newark, Houston Intercontinental and Cleveland,
and a Pacific hub on Guam and Saipan. Each of Continental's
three U.S. hubs is located in a large business and population
center, contributing to a high volume of "origin and destination"
traffic. The Guam/Saipan hub is strategically located to provide
service from Japanese and other Asian cities to popular resort
destinations in the western Pacific. Continental is the primary
carrier at each of these hubs, accounting for 52%, 79%, 53% and
72% of all daily jet departures, respectively.
Continental directly serves 131 U.S. cities, with additional
cities (principally in the western and southwestern United
States) connected to Continental's route system under agreements
with America West Airlines, Inc. Internationally, Continental
flies to 59 destinations and offers additional connecting service
through alliances with foreign carriers. Continental operates 66
weekly departures to six European cities and markets service to
four other cities through code-sharing agreements. Continental
recently announced new service from Newark to Lisbon, Portugal,
which is scheduled to commence on May 1, 1997. Continental is
one of the leading airlines providing service to Mexico and
Central America, serving more destinations in Mexico than any
other United States airline. In addition, Continental flies to
four cities in South America. Through its Guam/Saipan hub,
Continental provides extensive service in the western Pacific,
including service to more Japanese cities than any other United
States carrier.
The Company is a Delaware corporation. Its executive
offices are located at 2929 Allen Parkway, Suite 2010, Houston,
Texas 77019, and its telephone number is (713) 834-2950.
THE OFFERING
Securities Offered . . . $200,650,000 principal amount of 6-
3/4% Convertible Subordinated Notes
due April 15, 2006 (the "Registered
Notes"), with interest payable on
April 15 and October 15 of each year,
commencing on October 15, 1996.
Issuer . . . . . . . . . Continental Airlines, Inc., a
Delaware corporation.
Conversion Price . . . . $30.195 per share (equivalent to a
conversion rate of 33.118 shares per
$1,000 principal amount of Notes)
subject to adjustment. Such
conversion price and conversion rate
have been adjusted for the 2-for-1
stock split announced by Continental
on June 26, 1996 and payable on July
16, 1996 to holders of record of its
Class B common stock and Class A
common stock on July 2, 1996.
Form and Denomination. . The Registered Notes were issued in
the form of one or more Global
Registered Notes and deposited with
the Trustee as custodian for, and
registered in the name of a nominee
of, The Depository Trust Company
("DTC"). The Registered Notes are in
denominations of $1,000 and integral
multiples thereof.
Convertibility . . . . . The Notes are convertible into shares
of Class B common stock of the
Company at any time prior to the
close of business on the maturity
date, unless previously redeemed or
repurchased, at the conversion price
set forth above, subject to
adjustment. Holders of Notes called
for redemption will be entitled to
convert the Notes to and including,
but not after, the date fixed for
redemption. The right to convert a
Note delivered for repurchase will
terminate on the close of business on
the repurchase date.
Optional Redemption. . . Redeemable (a) as described
immediately below under "Additional
Amounts and Redemption for Taxation
Reasons" and (b) at the option of the
Company, on or after April 15, 1999,
at the redemption prices set forth
herein, plus accrued interest to the
redemption date.
Additional Amounts and
Redemption for Taxation
Reasons. . . . . . . . . The Company will pay Additional
Amounts (as defined in "Description
of Notes-Payment of Additional
Amounts"), subject to certain
exceptions, in order that the non-
U.S. Holders of Notes receive the
full amount of the principal,
premium, if any, and interest
specified therein (including any
amount payable upon a repurchase of
the Notes as described immediately
below under "Repurchase at Option of
Holders Upon Change in Control")
without deduction for or on account
of U.S. withholding taxes. In the
event that the Company must pay such
Additional Amounts as a result of a
change in law, the Tax Affected Notes
(as defined) will be redeemable at
the option of the Company, as a whole
but not in part, at 100% of the
principal amount thereof, plus any
accrued interest to the redemption
date (but without reduction for U.S.
withholding taxes). The Company will
not be obligated to pay Additional
Amounts in respect of payments
becoming due on the Notes more than
15 days after the redemption date for
such a redemption, except to the
extent that the Company's obligation
to pay such Additional Amounts does
not arise from the change in law that
resulted in such redemption.
Repurchase at Option of
Holders Upon Change
in Control . . . . . . . Repurchasable at the option of the
holder upon a Change in Control (as
defined under "Description of Notes -
Repurchase at Option of Holders Upon
a Change in Control") at 100% of the
principal amount thereof, plus
accrued interest to the repurchase
date. The repurchase price is payable
in cash or, at the option of the
Company, in Class B common stock
(valued at 95% of the average closing
prices of the Class B common stock
for the five trading days preceding
and including the third trading day
prior to the repurchase date).
Subordination. . . . . . Subordinated to present and future
Senior Indebtedness (as defined) of
the Company; senior to the Company's
guarantee of the Continental Airlines
Finance Trust's mandatorily
redeemable preferred securities of
subsidiary trust and the 8-1/2%
convertible subordinated debentures
due 2020 issued by the Company in
connection therewith. The Notes are
also effectively subordinated in
right of payment to all indebtedness
and other liabilities of the
Company's subsidiaries. As of June
30, 1996, the aggregate amount of
outstanding Senior Indebtedness was
approximately $1.5 billion. The
Indenture does not restrict the
incurrence of Senior Indebtedness or
other indebtedness by the Company or
any of its subsidiaries.
Events of Default. . . . Include: (a) failure to pay principal
of or premium, if any, on any Note
when due, whether or not such payment
is prohibited by the subordination
provisions of the Indenture; (b)
failure to pay any interest on any
Note when due, continuing for 30
days, whether or not such payment is
prohibited by the subordination
provisions of the Indenture; (c)
failure to perform any other covenant
of the Company in the Indenture,
continuing for 60 days after written
notices as provided in the Indenture;
(d) default in respect of any
indebtedness for money borrowed by
the Company which results in
acceleration of the maturity of an
amount in excess of $75,000,000 of
indebtedness if such indebtedness is
not discharged, or such acceleration
is not rescinded or annulled, within
30 days after written notice as
provided in the Indenture; and (e)
certain events of bankruptcy,
insolvency or reorganization.
Registration Rights. . . Continental has agreed to file this
Shelf Registration Statement (as
defined) in respect of the Registered
Notes and the Class B common stock
issuable upon conversion thereof
pursuant to the Registration Rights
Agreement (as defined). Upon any
failure by Continental to comply with
certain of its obligations under the
Registration Rights Agreement,
additional interest will be payable
on the Registered Notes.
Governing Law. . . . . . The laws of the State of New York,
United States of America.
Indenture. . . . . . . . Dated as of March 26, 1996, as
supplemented by the First
Supplemental Indenture, dated as of
August 6, 1996, between the Company
and Bankers Trust Company, as
Trustee.
Relationship of Class B
common stock to Class A
common stock . . . . . . The Company's Class A common stock
votes together with the Class B
common stock on all matters except as
otherwise required by law. Each
share of Class B common stock has one
vote; each share of Class A common
stock has 10 votes. The Class A
common stock and Class B common stock
share equally in any dividends and
distributions. Certain holders of
shares of Class A common stock have
the right, in certain circumstances,
to convert such shares into Class D
common stock, par value $.01 per
share (the "Class D common stock"),
of the Company. Pursuant to the
Company's Amended and Restated
Certificate of Incorporation (the
"Certificate of Incorporation"), at
any time after January 1, 1997,
shares of Class A common stock may be
converted into an equal number of
shares of Class B common stock. See
"Recent Developments" and
"Description of Capital Stock".
Limitation on Voting by
Foreign Owners . . . . . Foreign Ownership Restrictions (as
defined) contained in the Company's
Certificate of Incorporation and
Bylaws (the "Bylaws") limit the
number of shares of voting stock that
may be voted by foreign holders. See
"Description of Capital Stock".
Use of Proceeds. . . . . The Selling Holders will receive all
of the proceeds from the sale of the
Offered Securities. Continental will
not receive any proceeds from the
sale of the Offered Securities.
Listing. . . . . . . . . The Notes are listed on the
Luxembourg Stock Exchange. The
Company's Class B common stock is
listed on the NYSE under the symbol
"CAI.B". The shares of Class B
common stock issuable upon conversion
of the Notes will be authorized, upon
official notice of issuance, by the
NYSE.
RISK FACTORS
PROSPECTIVE PURCHASERS OF THE REGISTERED NOTES SHOULD
CAREFULLY REVIEW THE INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND SHOULD PARTICULARLY CONSIDER THE FOLLOWING
MATTERS.
Risk Factors Relating to the Company
Continental's History of Operating Losses
Although Continental recorded net income of $224 million in
1995 and $255 million in the six months ended June 30, 1996, it
had experienced significant operating losses in the previous
eight years. In the long term, Continental's viability depends
on its ability to sustain profitable results of operations.
Leverage and Liquidity
Continental has successfully negotiated a variety of
agreements to increase its liquidity during 1995 and 1996.
Nevertheless, Continental remains more leveraged and has
significantly less liquidity than certain of its competitors,
several of whom have available lines of credit and/or significant
unencumbered assets. Accordingly, Continental may be less able
than certain of its competitors to withstand a prolonged
recession in the airline industry.
As of June 30, 1996, Continental and its consolidated
subsidiaries had approximately $1.7 billion (including current
maturities) of long-term indebtedness and capital lease
obligations and had approximately $867 million of minority
interest, Continental-obligated mandatorily redeemable preferred
securities of subsidiary trust, redeemable warrants, redeemable
preferred stock and common stockholders' equity. Common
stockholders' equity reflects the adjustment of the Company's
balance sheet and the recording of assets and liabilities at fair
market value as of April 27, 1993 in accordance with fresh start
reporting.
During the first and second quarters of 1995, in connection
with negotiations with various lenders and lessors, Continental
ceased or reduced contractually required payments under various
agreements, which produced a significant number of events of
default under debt, capital lease and operating lease agreements.
Through agreements reached with the various lenders and lessors,
Continental has cured all of these events of default. The last
such agreement was put in place during the fourth quarter of
1995.
As of June 30, 1996, Continental had approximately $825
million of cash and cash equivalents, including restricted cash
and cash equivalents of $104 million. Continental does not have
general lines of credit and has significant encumbered assets.
Continental had firm commitments with The Boeing Company
("Boeing") to take delivery of 43 new jet aircraft during the
years 1997 through 2002 with an estimated aggregate cost of $2.6
billion. Continental recently amended the terms of its
commitments with Boeing to take delivery of a total of 61 jet
aircraft during the years 1997 through 2003 with options for an
additional 23 aircraft. The estimated aggregate cost of the
firm-committment aircraft is $2.7 billion. These amendments
changed the aircraft mix and timing of delivery of aircraft, in
order to more closely match Continental's anticipated future
aircraft needs. In addition, the Company took delivery of three
Beech 1900-D aircraft in the second quarter of 1996 and an
additional four such aircraft are scheduled to be delivered later
in 1996. The Company currently anticipates that the firm
financing commitments available to it with respect to its
acquisition of new aircraft from Boeing and Beech Acceptance
Corporation ("Beech") will be sufficient to fund all new aircraft
deliveries scheduled during 1996, and that it will have remaining
financing commitments from aircraft manufacturers of $676 million
for jet aircraft deliveries beyond 1996. However, the Company
believes that further financing will be needed to satisfy the
remaining amount of such capital commitments. There can be no
assurance that sufficient financing will be available for all
aircraft and other capital expenditures not covered by firm
financing commitments. Continental has also entered into letters
of intent or agreements with several outside parties to lease
four DC10-30 aircraft and to purchase three DC10-30 aircraft.
These seven aircraft are expected to be delivered by mid-year
1997, and Continental expects to finance the aircraft to be
purchased from available cash or from third party sources.
Express is in discussions with aircraft manufacturers regarding
the leasing by Express of regional jet aircraft, which the
Company anticipates would be accounted for as operating leases.
For 1996, Continental expects to incur cash expenditures
under operating leases of approximately $568 million, compared
with $521 million for 1995, relating to aircraft and
approximately $229 million relating to facilities and other
rentals, the same amount as for 1995. In addition, Continental
has capital requirements relating to compliance with regulations
that are discussed below. See "--Regulatory Matters."
CMI recently consummated a $320 million secured term loan
financing with a group of banks and other financial institutions.
The loan was made in two tranches - a $180 million five-year
amortizing term loan and a $140 million seven-year amortization
extended loan. Each tranche bears interest at a floating rate.
The loan is secured by the stock of CMI and substantially all its
unencumbered assets, consisting primarily of CMI's route
authorities, and is guaranteed by Continental and Air Micronesia,
Inc. (CMI's parent company).
CMI used the net proceeds of the financing to prepay $160
million in principal amount of indebtedness to an affiliate of
General Electric Company (General Electric Company and
affiliates, collectively "GE") and to pay transaction costs, and
Continental used the $136 million in proceeds received by it as
an indirect dividend from CMI, together with approximately $28
million of cash on hand, to prepay approximately $164 million in
principal amount of indebtedness to GE. The bank financing does
not contain any restrictive covenants at the Continental parent
level, and none of the assets of Continental Airlines, Inc.
(other than its stock in Air Micronesia, Inc.) is pledged in
connection with the new financing.
The bank financing contains significant financial covenants
relating to CMI, including maintenance of a minimum fixed charge
coverage ratio, a minimum consolidated net worth and minimum
liquidity, and covenants restricting CMI's leverage, its
incurrence of certain indebtedness and its pledge of assets. The
financial covenants also limit the ability of CMI to pay
dividends to Continental.
On July 2, 1996, the Company announced its plan to expand
its gates and related facilities in Terminal B as well as planned
improvements at Terminal C at Continental's Houston
Intercontinental Airport hub. The expansion is expected to cost
approximately $115 million, which the Company expects will be
funded principally by the issuance of tax-exempt debt by the
applicable municipal authority. In connection therewith, the
Company expects to enter into long-term leases (or amendments to
existing leases) with the applicable municipal authority
containing rental payments sufficient to service the related tax-
exempt debt.
Aircraft Fuel
Since fuel costs constitute a significant portion of
Continental's operating costs (approximately 12.5% for the year
ended December 31, 1995 and 12.8% for the six months ended June
30, 1996), significant changes in fuel costs would materially
affect the Company's operating results. Fuel prices continue to
be susceptible to international events, and the Company cannot
predict near or longer-term fuel prices. The Company has entered
into petroleum option contracts to provide some short-term
protection (currently approximately six months) against a sharp
increase in jet fuel prices. In the event of a fuel supply
shortage resulting from a disruption of oil imports or otherwise,
higher fuel prices or curtailment of scheduled service could
result.
Certain Tax Matters
The Company's United States federal income tax return
reflects net operating loss carryforwards ("NOLs") of $2.5
billion, subject to audit by the Internal Revenue Service, of
which $1.2 billion are not subject to the limitations of Section
382 of the Internal Revenue Code ("Section 382"). As a result,
the Company will not pay United States federal income taxes
(other than alternative minimum tax) until it has recorded
approximately an additional $1.2 billion of taxable income
following December 31, 1995. For financial reporting purposes,
Continental began accruing tax expense on its income statement
during the second quarter of 1996. Section 382 imposes
limitations on a corporation's ability to utilize NOLs if it
experiences an "ownership change." In general terms, an
ownership change may result from transactions increasing the
ownership of certain stockholders in the stock of a corporation
by more than 50 percentage points over a three-year period. The
sale of the Company's common stock in the Secondary Offering (as
defined in and described under "Recent Developments") gave rise
to an increase in percentage ownership by certain stockholders
for this purpose. Based upon the advice of its counsel, Cleary,
Gottlieb, Steen & Hamilton, the Company believes that such
percentage increase did not give rise to an ownership change
under Section 382. However, no assurance can be given that
future transactions, whether within or outside the control of the
Company, will not cause a change in ownership, thereby
substantially limiting the potential utilization of the NOLs in a
given future year. In the event that an ownership change should
occur, utilization of Continental's NOLs would be subject to an
annual limitation under Section 382, determined by multiplying
the value of the Company's stock (including both common and
preferred stock) at the time of the ownership change by the
applicable long-term tax exempt rate (which was 5.78% for June
1996). Unused annual limitations may be carried over to later
years, and the amount of the limitation may under certain
circumstances be increased by the built-in gains in assets held
by the Company at the time of the change that are recognized in
the five-year period after the change. Under current conditions,
if an ownership change were to occur, Continental's NOL
utilization would be limited to approximately $100 million per
year.
In connection with the Company's 1993 reorganization under
Chapter 11 of the U.S. bankruptcy code effective April 27, 1993
(the "Reorganization") and the recording of assets and
liabilities at fair market value under the American Institute of
Certified Public Accountants' Statement of Position 90-7-
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), the Company recorded a deferred
tax liability at April 27, 1993, net of the amount of the
Company's estimated realizable NOLs as required by Statement of
Financial Accounting Standards No. 109-"Accounting for Income
Taxes." Realization of a substantial portion of the Company's
NOLs will require the completion during the five-year period
following the Reorganization of transactions resulting in
recognition of built-in gains for federal income tax purposes.
The Company has consummated one such transaction, which had the
effect of realizing approximately 40% of the built-in gains
required to be realized over the five-year period, and currently
intends to consummate one or more additional transactions. If
the Company were to determine in the future that not all such
transactions will be completed, an adjustment to the net deferred
tax liability of up to $116 million would be charged to income in
the period such determination was made.
CMI
CMI's operating profit margins have consistently been
greater than the Company's margins overall. In addition to its
non-stop service between Honolulu and Tokyo, CMI's operations
focus on the neighboring islands of Guam and Saipan, resort
destinations that cater primarily to Japanese travelers. Because
the majority of CMI's traffic originates in Japan, its results of
operations are substantially affected by the Japanese economy and
changes in the value of the yen as compared to the dollar.
Appreciation of the yen against the dollar during 1993 and 1994
increased CMI's profitability and a decline of the yen against
the dollar may be expected to decrease it. To reduce the
potential negative impact on CMI's dollar earnings, CMI from time
to time purchases average rate options as a hedge against a
portion of its expected net yen cash flow position. Any
significant and sustained decrease in traffic or yields to and
from Japan could materially adversely affect Continental's
consolidated profitability.
Principal Stockholders
As of July 31, 1996, Air Canada held approximately 10.0% of
the common equity interests and 4.0% of the general voting power
of the Company, and Air Partners, L.P. ("Air Partners") held
approximately 9.8% of the common equity interests and 39.3% of
the general voting power of the Company. In addition, assuming
exercise of all of the warrants held by Air Partners,
approximately 23.3% of the common equity interests and 52.1% of
the general voting power would be held by Air Partners. As
discussed in "Recent Developments," Air Canada has announced its
intention to divest its interest in the Company in December 1996
or early 1997. In addition, the Company has filed a shelf
registration statement to register (i) the sale by the Company of
up to $50 million in net proceeds of Class B common stock in
connection with the potential repurchase by the Company of up to
an aggregate of $50 million in intrinsic value (then-current
Class B common stock price minus exercise price) of Air Partners'
warrants to purchase Class B common stock, (ii) the sale by Air
Partners or its partners, affiliates and certain directors and
officers of the Company of up to 8,543,868 shares of Class A
common stock (including shares issuable pursuant to the exercise
of warrants), (iii) the sale by Air Partners and certain of its
affiliates, Air Canada and certain directors and officers of the
Company of up to 19,165,759 shares of Class B common stock
(including shares issuable pursuant to the exercise of warrants),
(iv) the sale by Air Partners or its partners of up to 3,039,468
warrants, each entitling the holder thereof to purchase one share
of Class A common stock and (v) the sale by Air Partners or its
partners of up to 6,765,264 warrants, each entitling the holder
thereof to purchase one share of Class B common stock. At any
time after January 1, 1997, shares of Class A common stock may be
freely converted into an equal number of shares of Class B common
stock. Such conversion would effectively increase the relative
voting power of those Class A stockholders who do not convert.
See "Recent Developments" and "Description of Capital Stock."
Various provisions in the Company's Certificate of
Incorporation and Bylaws currently provide Air Partners with the
right to elect one-third of the directors in certain
circumstances; these provisions could have the effect of
delaying, deferring or preventing a change in control of the
Company. See "Recent Developments" and "Description of Capital
Stock."
Risk Factors Relating to the Airline Industry
Industry Conditions and Competition
The airline industry is highly competitive and susceptible
to price discounting. The Company has in the past both responded
to discounting actions taken by other carriers and initiated
significant discounting actions itself. Continental's
competitors include carriers with substantially greater financial
resources, as well as smaller carriers with lower cost
structures. Airline profit levels are highly sensitive to, and
during recent years have been severely impacted by, changes in
fuel costs, fare levels (or "average yield") and passenger
demand. Passenger demand and yields have been adversely affected
by, among other things, the general state of the economy,
international events and actions taken by carriers with respect
to fares. From 1990 to 1993, these factors contributed to the
domestic airline industry's incurring unprecedented losses.
Although fare levels have increased recently, significant
industry-wide discounts could be reimplemented at any time, and
the introduction of broadly available, deeply discounted fares by
a major United States airline would likely result in lower yields
for the entire industry and could have a material adverse effect
on the Company's operating results.
The airline industry has consolidated in past years as a
result of mergers and liquidations and may further consolidate in
the future. Among other effects, such consolidation has allowed
certain of Continental's major competitors to expand (in
particular) their international operations and increase their
market strength. Furthermore, the emergence in recent years of
several new carriers, typically with low cost structures, has
further increased the competitive pressures on the major United
States airlines. In many cases, the new entrants have initiated
or triggered price discounting. Aircraft, skilled labor and
gates at most airports continue to be readily available to start-
up carriers. Although management believes that Continental is
better able than some of its major competitors to compete with
fares offered by start-up carriers because of its lower cost
structure, competition with new carriers or other low cost
competitors on Continental's routes could negatively impact
Continental's operating results.
Regulatory Matters
In the last several years, the United States Federal
Aviation Administration (the "FAA") has issued a number of
maintenance directives and other regulations relating to, among
other things, retirement of older aircraft, collision avoidance
systems, airborne windshear avoidance systems, noise abatement,
commuter aircraft safety and increased inspections and
maintenance procedures to be conducted on older aircraft. The
Company expects to continue incurring expenses for the purpose of
complying with the FAA's noise and aging aircraft regulations.
In addition, several airports have recently sought to increase
substantially the rates charged to airlines, and the ability of
airlines to contest such increases has been restricted by federal
legislation, U.S. Department of Transportation regulations and
judicial decisions.
Management believes that the Company benefited significantly
from the expiration of the aviation trust fund tax (the "ticket
tax") on December 31, 1995, although the amount of any such
benefit resulting directly from the expiration of the ticket tax
cannot precisely be determined. In early August 1996, the
Congress approved legislation which would reinstate the ticket
tax until December 31, 1996, and such legislation was being
enrolled for submission to the President of the United States for
his signature. Reinstatement of the ticket tax will occur seven
days after the President signs the authorizing legislation.
Management believes that the reimposition of the ticket tax will
have a negative impact on the Company, although the amount of
such negative impact directly resulting from the reimposition of
the ticket tax cannot be precisely determined.
Additional laws and regulations have been proposed from time
to time that could significantly increase the cost of airline
operations by imposing additional requirements or restrictions on
operations. Laws and regulations have also been considered that
would prohibit or restrict the ownership and/or transfer of
airline routes or takeoff and landing slots. Also, the
availability of international routes to United States carriers is
regulated by treaties and related agreements between the United
States and foreign governments that are amendable. Continental
cannot predict what laws and regulations may be adopted or their
impact, but there can be no assurance that laws or regulations
currently proposed or enacted in the future will not adversely
affect the Company.
Risk Factors Relating to the Notes
Ranking of Subordinate Obligations Under the Notes
The obligations of Continental under the Notes are
subordinate to all present and future Senior Indebtedness of
Continental and pari passu with obligations to or rights of
Continental's other general unsecured creditors. The Notes are
senior to the Company's guarantee of Continental Airlines Finance
Trust's mandatorily redeemable preferred securities of trust and
the 8 1/2% convertible subordinated debentures due 2020 issued by
the Company in connection therewith. As of June 30, 1996, Senior
Indebtedness aggregated approximately $1.5 billion. There are no
terms in the Notes that limit Continental's ability to incur
additional indebtedness, including indebtedness that ranks senior
to the Notes. See "Description of Notes-Subordination."
Absence of Trading Market
There is no existing public trading market for the
Registered Notes and there can be no assurance as to the
liquidity of any such market that may develop, the ability of the
holders of Registered Notes to sell such securities, the price at
which the holders of Registered Notes would be able to sell such
securities or whether a public trading market, if it develops,
will continue. If such a market were to exist, the Registered
Notes could trade at prices higher or lower than their principal
amount, depending on many factors, including prevailing interest
rates, the market for similar securities and the operating
results of the Company.
RECENT DEVELOPMENTS
Stock Split
On June 26, 1996, the Board of Directors of the Company
declared a two-for-one stock split (the "Stock Split") pursuant
to which (a) one share of the Company's Class A common stock was
issued for each share of Class A common stock outstanding on July
2, 1996 (the "Record Date") and (b) one share of the Company's
Class B common stock was issued for each share of Class B common
stock outstanding on the Record Date. Shares issuable pursuant
to the Stock Split were distributed on or about July 16, 1996.
Corporate Governance
On June 26, 1996, at the Company's annual meeting of
stockholders (the "Annual Meeting"), the Company's stockholders
approved changes proposed by the Company to its Certificate of
Incorporation, which, together with amendments to the Company's
Bylaws previously approved by the Company's Board of Directors
(collectively, the "Amendments"), generally eliminate special
classes of directors (except for Air Partners' right to elect
one-third of the directors in certain circumstances as described
below) and supermajority provisions, and make a variety of other
modifications aimed at streamlining the Company's corporate
governance structure. The amendments to the Company's
Certificate of Incorporation included elimination of Class C
common stock, $.01 par value (the "Class C common stock"), of the
Company as an authorized class of capital stock and changed the
rights of holders of Class D common stock, $.01 par value (the
"Class D common stock"), with respect to election of directors-
holders of Class D common stock will now be entitled to elect
one-third of the directors. Pursuant to the Certificate of
Incorporation, Class D common stock is solely issuable to Air
Partners and certain of its affiliates. There is currently no
Class D common stock outstanding. The Amendments, as a whole,
reflect the reduction of Air Canada's equity interest in the
Company, as described below, and the decision of the former
directors designated by Air Canada not to stand for reelection,
along with the expiration of various provisions of the Company's
Certificate of Incorporation and Bylaws specifically included at
the time of the Company's reorganization in 1993.
The Amendments also provide that, at any time after January
1, 1997, shares of Class A common stock may be freely converted
into an equal number of shares of Class B common stock. Under
agreements put in place at the time of the Company's
reorganization in 1993, and designed in part to ensure compliance
with the foreign ownership limitations applicable to United
States air carriers in light of the substantial stake in the
Company then held by Air Canada, holders of Class A common stock
were not permitted under the Company's Certificate of
Incorporation to convert their shares to Class B common stock.
In recent periods, the market price of Class A common stock has
generally been below the market price of Class B common stock,
which the Company believes is attributable in part to the reduced
liquidity present in the trading market for Class A common stock.
A number of Class A stockholders requested that the Company
provide for free convertibility of Class A common stock into
Class B common stock, and in light of the reduction of Air
Canada's equity stake, the Company determined that the
restriction was no longer necessary. Any such conversion would
effectively increase the relative voting power of those Class A
stockholders who do not convert.
On April 19, 1996, the Company's Board of Directors approved
certain agreements (the "Agreements") with its two major
stockholders, Air Canada and Air Partners. The Agreements
contain a variety of arrangements intended generally to reflect
the intention that Air Canada has expressed to the Company of
divesting its investment in Continental during December 1996 or
early 1997, subject to market conditions. Air Canada has
indicated to the Company that its original investment in
Continental has become less central to Air Canada in light of
other initiatives it has undertaken - particularly expansion
within Canada and exploitation of the 1995 Open Skies agreement
to expand Air Canada's own flights into the U.S. Because of
these initiatives Air Canada has determined it appropriate to
redeploy the funds invested in the Company into other uses in Air
Canada's business. The Agreements also reflect the distribution
by Air Partners, effective March 29, 1996, to its investors (the
"AP Investors") of all of the shares of the Class B common stock
held by Air Partners and the desire of some of the AP Investors
to realize the increase in value of their investment in the
Company by selling all or a portion of their shares of Class B
common stock.
Among other things, the Agreements required the Company to
file a registration statement under the Securities Act to permit
the sale by Air Canada of 2,200,000 shares of Class B common
stock held by it and by certain of the AP Investors of an
aggregate of 1,730,240 (each on a pre-Stock Split basis) such
shares pursuant to an underwritten public offering arranged by
the Company (the "Secondary Offering"). The Secondary Offering
was completed on May 14, 1996. The Agreements provided for the
following additional steps to be taken in connection with the
completion of the Secondary Offering:
- in light of its reduced equity stake in the Company,
Air Canada was no longer entitled to designate nominees
to the Board of Directors of the Company, caused the
four then-present or former members of the Air Canada
board who served as directors of Continental to decline
nomination for reelection as directors and converted
all of its Class A common stock to Class B common
stock;
- Air Canada and Air Partners entered into a number of
agreements restricting, prior to December 16, 1996,
further disposition of the common stock of the Company
held by either of them; and
- each of the existing Stockholders' Agreement and the
registration rights agreement (the ("Original
Registration Rights Agreement") among the parties was
modified in a number of respects to reflect, among
other matters, the changing composition of the
respective equity interests of the parties.
After such sale and the conversion by Air Canada of its
Class A common stock into Class B common stock, Air Canada holds
approximately 10.0% of the common equity interests and 4.0% of
the general voting power of the Company, and Air Partners holds
approximately 9.8% of the common equity interests and 39.3% of
the general voting power of the Company. If all of the warrants
held by Air Partners were exercised, approximately 23.3% of the
common equity interests and 52.1% of the general voting power
would be held by Air Partners.
The Company and Air Canada also entered into a memorandum of
understanding regarding modifications to certain of the Company's
existing "synergy" agreements with Air Canada, which covered
items such as maintenance and ground facilities, and resolved
certain outstanding commercial issues under the agreements. In
May 1996, the Company entered into an agreement with Air Partners
for the sale by Air Partners to the Company from time to time at
Air Partners' election for the one-year period beginning August
15, 1996, of up to an aggregate of $50 million in intrinsic value
(then-current Class B common stock price minus exercise price) of
Air Partners' Class B common stock warrants. The purchase price
would be payable in cash. The Board of Directors has authorized
the Company to publicly issue up to $50 million of Class B common
stock in connection with any such purchase and the Company has
filed a shelf registration statement with respect thereto. In
connection with this agreement, the Company has reclassified $50
million from common equity to redeemable warrants.
Because certain aspects of the Agreements raised issues
under the change in control provisions of certain of the
Company's employment agreements and employee benefit plans, these
agreements and plans were modified to provide a revised change of
control definition that the Company believes is appropriate in
light of the prospective changes to its equity ownership
structure. In connection with the modifications, payments were
made to certain employees, benefits were granted to certain
employees and options equal to 10% of the amount of the options
previously granted to each optionee were granted (subject to
certain conditions) to substantially all employees holding
outstanding options.
RATIO OF EARNINGS TO FIXED CHARGES
The following information for the years ended December 31,
1991 and 1992 and for the period January 1, 1993 through April
27, 1993 relates to Continental's predecessor, Holdings.
Information for the period April 28, 1993 through December 31,
1993, for the years ended December 31, 1994 and 1995, and for the
three and six months ended June 30, 1995 and 1996 relates to
Continental. The information as to Continental has not been
prepared on a consistent basis of accounting with the information
as to Holdings due to Continental's adoption, effective April 27,
1993, of fresh start reporting in accordance with the American
Institute of Certified Public Accountants' Statement of Position
90-7-"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7").
For the years ended December 31, 1991 and 1992, for the
periods January 1, 1993 through April 27, 1993 and April 28, 1993
through December 31, 1993, and for the year ended December 31,
1994 earnings were not sufficient to cover fixed charges.
Additional earnings of $316 million, $131 million, $979 million,
$60 million and $667 million, respectively, would have been
required to achieve ratios of earnings to fixed charges of 1.0.
The ratio of earnings to fixed charges for the year ended
December 31, 1995 was 1.53. The ratio of earnings to fixed
charges for the three and six months ended June 30, 1996 was 2.57
and 2.13, respectively, and for the three and six months ended
June 30, 1995 was 2.22 and 1.52, respectively. For purposes of
calculating this ratio, earnings consist of earnings before
taxes, minority interest and extraordinary items plus interest
expense (net of capitalized interest), the portion of rental
expense deemed representative of the interest expense and
amortization of previously capitalized interest. Fixed charges
consist of interest expense and the portion of rental expense
representative of interest expense.
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from
the sale of the Offered Securities. Continental will not receive
any proceeds from the sale of the Offered Securities.
SELECTED FINANCIAL DATA
The following tables set forth selected financial data of
(i) the Company for the three and six months ended June 30, 1996
and 1995, the years ended December 31, 1995 and 1994 and for the
period from April 28, 1993 through December 31, 1993 and (ii)
Holdings for the period from January 1, 1993 through April 27,
1993. The consolidated financial data of both the Company, for
the years ended December 31, 1995 and 1994 and for the period
from April 28, 1993 through December 31, 1993, and Holdings, for
the period from January 1, 1993 through April 27, 1993, are
derived from their respective audited consolidated financial
statements. On April 27, 1993, in connection with the
Reorganization, the Company adopted fresh start reporting in
accordance with SOP 90-7. A vertical black line is shown in the
table below to separate Continental's post-reorganized
consolidated financial data from the pre-reorganized consolidated
financial data of Holdings since they have not been prepared on a
consistent basis of accounting. The consolidated financial data
of the Company for the three months and the six months ended June
30, 1996 and 1995 are derived from its unaudited consolidated
financial statements, which include all adjustments (consisting
solely of normal recurring accruals) that the Company considers
necessary for the presentation of the financial position and
results of operations for these periods. Operating results for
the six months ended June 30, 1996 are not necessarily indicative
of the results that may be expected for the year ending December
31, 1996. The Company's selected consolidated financial data
should be read in conjunction with, and are qualified in their
entirety by reference to, the consolidated financial statements,
including the notes thereto, incorporated by reference herein.
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
----- ----- ----- -----
(In millions of dollars, except per share data)
Statement of
Operations Data: (unaudited) (unaudited)
Operating Revenue:
Passenger $1,519 $1,355 $2,894 $2,595
Cargo, mail
and other 120 123 234 292
----- ----- ----- -----
1,639 1,478 3,128 2,887
----- ----- ----- -----
Operating Expenses:
Wages, salaries and
related costs 378 357 742 723
Aircraft fuel 180 168 357 337
Aircraft rentals 127 124 251 247
Commissions 137 131 263 250
Maintenance, materials
and repairs 119 101 231 198
Other rentals and
landing fees 85 93 169 185
Depreciation and
amortization 67 65 132 129
Other 317 330 634 680
----- ----- ----- -----
1,410 1,369 2,779 2,749
----- ----- ----- -----
Operating Income
(Loss) 229 109 349 138
----- ----- ----- -----
Nonoperating
Income (Expense):
Interest expense (42) (56) (89) (110)
Interest
capitalized - 3 1 4
Interest income 10 8 19 13
Reorganization
items, net - - - -
Other, net 9 117 21 108
----- ----- ----- -----
(23) 72 (48) 15
----- ----- ----- -----
Income (Loss)
before Income
Taxes, Minority
Interest and
Extraordinary
Gain 206 181 301 153
Net Income (Loss) $167 $102 $255 $72
Earnings (Loss)
per Common
and Common
Equivalent Share(4)$2.53 $1.51 $3.90 $1.15
===== ===== ===== =====
Earnings (Loss)
per Common
Share Assuming
Full Dilution(4) $2.04 $1.49 $3.25 $1.10
===== ===== ===== =====
Period
from
Reorgani- Period
zation from
(April 28, Janaury
1993) 1,
through 1993
Year Ended December through
December 31, 31, April 27,
1995 1994 1993 1993
----- ----- ----- ----
(In millions of dollars, except per share data)
(unaudited) (unaudited)
Statement of
Operations Data:
Operating Revenue:
Passenger $5,302 $5,036 $3,493 $1,622
Cargo, mail and
other 523 634 417 235
----- ----- ----- -----
5,825 5,670 3,910 1,857
----- ----- ----- -----
Operating Expenses:
Wages, salaries
and related
costs 1,432(1) 1,532 1,000 502
Aircraft fuel 681 741 540 272
Aircraft rentals 497 433 261 154
Commissions 489 439 378 175
Maintenance,
materials
and repairs 429 495 363 184
Other rentals
and landing
fees 356 392 258 120
Depreciation and
amortization 253 258 162 77
Other 1,303 1,391 853 487
----- ----- ----- -----
5,440 5,681 3,815 1,971
----- ----- ----- -----
Operating Income
(Loss) 385 (11) 95 (114)
----- ----- ----- -----
Nonoperating
Income (Expense):
Interest expense (213) (241) (165) (52)
Interest capitalized 6 17 8 2
Interest income 31 23 14 -
Reorganization
items, net - - - (818)
Other, net 101 (439)(2) (4) 5
----- ----- ----- -----
(75) (640) (147) (863)
----- ----- ----- -----
Income (Loss) before
Income Taxes,
Minority Interest
and Extraordinary
Gain 310 (651) (52) (977)
Net Income (Loss) $224 $(613) $(39) $2,640(3)
Earnings (Loss) per
Common and Common
Equivalent Share(4)$3.60 $(11.88) $(1.17) N.M.(5)
====== ====== ====== ======
Earnings (Loss) per
Common Share
Assuming Full
Dilution(4) $3.15 $(11.88) $(1.17) N.M.(5)
====== ====== ====== ======
As of
As of December
June 30, 31,
1996 1995
-------- --------
Balance Sheet Data: (In millions of dollars)
(unaudited)
Cash and Cash Equivalents,
including restricted
Cash and Cash Equivalents
of $104 and $144,
respectively(6) $825 $747
Other Current Assets 702 568
Total Property and Equipment, Net 1,436 1,461
Routes, Gates and Slots, Net 1,502 1,531
Other Assets, Net 485 514
------ ------
Total Assets $4,950 $4,821
====== ======
Current Liabilities $2,108 $1,984
Long-term Debt and Capital Leases 1,435 1,658
Deferred Credits and Other
Long-term Liabilities 540 564
Minority Interest 28 27
Continental-Obligated Mandatorily
Redeemable Preferred Securities
of Subsidiary Trust holding
solely Convertible Subordinated
Debentures(7) 242 242
Redeemable Warrants(8) 50 -
Redeemable Preferred Stock 43 41
Common Stockholders' Equity 504 305
------ ------
Total Liabilities and Stockholders'
Equity $4,950 $ 4,821
====== ======
- - -----------------
(1) Includes a $20 million cash payment in 1995 by the Company
in connection with a 24-month collective bargaining
agreement entered into by the Company and the Independent
Association of Continental Pilots.
(2) Includes a provision of $447 million recorded in the fourth
quarter of 1994 associated with the planned early retirement
of certain aircraft and closed or underutilized airport and
maintenance facilities and other assets.
(3) Reflects a $3.6 billion extraordinary gain from
extinguishment of debt.
(4) On June 26, 1996, the Company announced the Stock Split with
respect to the Company's Class A common stock and Class B
common stock. Accordingly, the earnings per share
information has been restated to give effect to the Stock
Split.
(5) Historical per share data for Holdings is not meaningful
since the Company has been recapitalized and has adopted
fresh start reporting as of April 27, 1993.
(6) Restricted cash and cash equivalents agreements relate
primarily to workers' compensation claims and the terms of
certain other agreements. In addition, CMI is required by
loan agreements to maintain certain minimum consolidated net
worth and liquidity levels, which effectively restrict the
amount of cash available to Continental from CMI.
(7) The sole assets of the Trust are Convertible Subordinated
Debentures, with an aggregate principal amount of $250
million, which bear interest at the rate of 8 1/2% per annum
and mature on December 1, 2020. Upon repayment, the
Continental-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust will be mandatorily redeemed.
(8) The Company has agreed to repurchase up to $50 million of
intrinsic value (then-current Class B common stock price
minus exercise price) of Class B warrants at the election of
Air Partners during the one year period commencing August
15, 1996.
DESCRIPTION OF NOTES
The Notes were issued under an Indenture, dated as of March
26, 1996, as supplemented by the First Supplemental Indenture
dated as of August 6, 1996 (the "Indenture"), between the Company
and Bankers Trust Company, as Trustee (the "Trustee"), a copy of
which is filed as an exhibit to the Registration Statement of
which this Prospectus is a part and is available as described
under "Available Information" and for inspection at the Corporate
Trust Office of the Trustee in the Borough of Manhattan, The City
of New York, and at the offices of the Paying Agents identified
herein. The terms of the Notes include those stated in the
Indenture and those made a part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). Wherever particular defined terms of the Indenture
(including the Notes and the various forms thereof) are referred
to, such defined terms are incorporated herein by reference (the
Notes and various terms relating to the Notes being referred to
in the Indenture as "Securities"). References in this section to
the "Company" are solely to Continental Airlines, Inc. and not
its subsidiaries. The following summaries of certain provisions
of the Indenture do not purport to be complete, and reference is
made to the detailed provisions of the Notes and the Indenture
and those terms made a part of the Indenture under the Trust
Indenture Act, including the definitions therein of certain
terms.
General
The Notes are unsecured subordinated obligations of the
Company, limited to $230,000,000 aggregate principal amount, will
mature on April 15, 2006 and be payable at a price of 100% of the
principal amount thereof. The Notes bear interest at the rate
per annum shown on the front cover of this Prospectus from March
26, 1996, payable semiannually on April 15 and October 15 of each
year, commencing on October 15, 1996. Interest payable per
$1,000 principal amount of Notes for the period from March 26,
1996 to October 15, 1996 will be $37.3125. (Sections 3.1 and 3.7
of the Indenture)
The Notes are convertible into shares of Class B common
stock at the conversion price stated on the cover page hereof,
subject to adjustment upon the occurrence of certain events
described under "-Conversion Rights". (Section 12.1)
The Notes are redeemable (a) in the event of certain
developments involving U.S. withholding taxes or certification
requirements as described below under "-Redemption-Redemption for
Taxation Reasons", at a redemption price of 100% of the principal
amount of the Notes to be redeemed, plus accrued interest to the
redemption date and (b) at the option of the Company, on or after
April 15, 1999, in whole or in part, at the redemption prices set
forth below under "-Redemption-Optional Redemption", plus accrued
interest to the redemption date. (Section 2.2)
Beneficial interests in the Registered Notes trade in the
Same Day Funds Settlement System of DTC.
Form and Denomination
The Registered Notes were issued in the form of one or more
Global Registered Notes without coupons, and deposited with the
Trustee as custodian for DTC and registered in the name of a
nominee of DTC. Owners of beneficial interests in a Global
Registered Note hold such interests pursuant to the procedures
and practices of DTC and must exercise any rights in respect of
their interests (including any right to convert, exchange or
require repurchase of their interests) in accordance with those
procedures and practices. Such beneficial owners are not
Holders, and are not entitled to any rights under any Note or the
Indenture, with respect to any Global Registered Note, and the
Company and the Trustee, and any of their respective agents, may
treat DTC as the Holder and owner of any Global Registered Note.
The Bearer Notes are in definitive bearer form with coupons.
The Bearer Notes, and the Class B common stock issuable upon
conversion of the Bearer Notes, are not being offered hereby.
As long as DTC, or its nominee, is the registered Holder of
a Global Registered Note, DTC or such nominee, as the case may
be, will be considered the sole owner and Holder of the Notes
represented by such Global Registered Note for all purposes under
the Indenture and the Notes. Unless DTC notifies the Company
that it is unwilling or unable to continue as depository for a
Global Registered Note, or ceases to be a "Clearing Agency"
registered under the Exchange Act, or announces an intention
permanently to cease business or does in fact do so, or an Event
of Default has occurred and is continuing with respect to a
Global Registered Note, owners of beneficial interests in a
Global Registered Note will not be entitled to have any portions
of such Global Registered Note registered in their names, will
not receive or be entitled to receive physical delivery of Notes
in definitive form and will not be considered the owners or
Holders of the Global Registered Note (or any Notes represented
thereby) under the Indenture or the Notes. In addition, no
beneficial owner of an interest in a Global Registered Note will
be able to transfer that interest except in accordance with DTC's
applicable procedures (in addition to those under the Indenture
referred to herein). In the event that owners of beneficial
interests in a Global Registered Note become entitled to receive
Notes in definitive form, such Notes will be issued only as
Registered Notes in denominations of $1,000 and integral
multiples thereof.
Subject to the following considerations, beneficial
interests in the Global Registered Notes will trade in DTC's
Same-Day Funds Settlement System, and secondary market trading
activity in such interests will therefore settle in immediately
available funds. The Company expects that DTC or its nominee,
upon receipt of any payment of principal or interest in respect
of a Global Registered Note representing any Notes held by it or
its nominee, will credit participants' accounts with payments in
amounts proportionate to their respective beneficial interests in
the principal amount of such Global Registered Notes for such
Notes as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of
beneficial interests in such Global Registered Notes held through
such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for
the accounts of customers registered in "street name". Such
payments will be the responsibility of such participants.
DTC has advised the Company as follows: DTC is a limited
purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code,
as amended, and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of
its participants, thereby eliminating the need for physical
transfer and delivery of certificates. Participants include
securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other
organizations. Indirect access to the DTC system is available to
other entities such as banks, brokers, dealers and trust
companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly ("indirect
participants").
Although DTC has agreed to the foregoing procedures in order
to facilitate transfers of beneficial ownership interests in
Global Registered Notes among participants of DTC, it is under no
obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. None of the
Company, the Trustee nor any of their respective agents will have
any responsibility for the performance by DTC, its participants
or indirect participants of their respective obligations under
the rules and procedures governing their operations, including
maintaining, supervising or reviewing the records relating to, or
payments made on account of, beneficial ownership interests in
Global Registered Notes.
Conversion Rights
The Holder of any Note has the right, at the Holder's
option, to convert any portion of the principal amount of a
Registered Note that is an integral multiple of $1,000 into
shares of Class B common stock at any time prior to the close of
business on the maturity date, unless previously redeemed or
repurchased, at a conversion price of $30.195 per share (subject
to adjustment as described below). Such conversion price has
been adjusted for the Stock Split. The right to convert a Note
called for redemption or delivered for repurchase will terminate
at the close of business on the Redemption Date for such Note or
the Repurchase Date, as the case may be. (Section 12.1)
Registered Notes may be surrendered for conversion at the
Corporate Trust Office of the Trustee in the Borough of
Manhattan, The City of New York and, subject to any applicable
laws and regulations, at the office of any Conversion Agent
outside the United States, accompanied by a duly signed and
completed notice of conversion. The conversion date will be the
date on which the Note and the duly signed and completed notice
of conversion are so delivered. As promptly as practicable on or
after the conversion date, the Company will issue and deliver to
the Trustee a certificate or certificates for the number of full
shares of Class B common stock issuable upon conversion, together
with payment in lieu of any fraction of a share; such certificate
or certificates will be sent by the Trustee to the Holder, or to
the appropriate Conversion Agent for delivery to the Holder.
Such shares of Class B common stock issuable upon conversion of
the Notes will be fully paid and nonassessable and will rank pari
passu with the other shares of Class B common stock of the
Company outstanding from time to time. Any Registered Note
surrendered for conversion during the period from the close of
business on any Regular Record Date to the opening of business on
the next succeeding Interest Payment Date (except Notes called
for redemption on a Redemption Date or to be repurchased on a
Repurchase Date during such period) must be accompanied by
payment of an amount equal to the interest payable on such
Interest Payment Date on the principal amount of Registered Notes
being surrendered for conversion. In the case of any Registered
Note which has been converted after any Regular Record Date but
before the next Interest Payment Date, interest the Stated
Maturity of which is on such Interest Payment Date shall be
payable on such Interest Payment Date notwithstanding such
conversion, and such interest shall be paid to the Holder of such
Registered Note on such Regular Record Date. As a result,
Holders that surrender Notes for conversion on a date that is not
an Interest Payment Date will not receive any interest for the
period from the Interest Payment Date next preceding the date of
conversion to the date of conversion or for any later period,
even if the Notes are surrendered after a notice of redemption
(except for the payment of interest on Registered Notes called
for redemption on a Redemption Date or to be repurchased on a
Repurchase Date between a Regular Record Date and the Interest
Payment Date to which it relates). No other payment or
adjustment for interest, or for any dividends in respect of Class
B common stock, will be made upon conversion. Holders of Class B
common stock issued upon conversion will not be entitled to
receive any dividends payable to holders of Class B common stock
as of any record time before the close of business on the
conversion date. No fractional shares will be issued upon
conversion but, in lieu thereof, an appropriate amount will be
paid in cash by the Company based on the market price of Class B
common stock at the close of business on the day of conversion.
(Sections 2.2, 3.7, 12.2 and 12.3)
A Holder delivering a Note for conversion will not be
required to pay any taxes or duties in respect of the issue or
delivery of Class B common stock on conversion but will be
required to pay any tax or duty which may be payable in respect
of any transfer involved in the issue or delivery of the Class B
common stock in a name other than that of the Holder of the Note.
Certificates representing shares of Class B common stock will not
be issued or delivered unless all taxes and duties, if any,
payable by the Holder have been paid. (Sections 12.2 and 12.8)
The conversion price is subject to adjustment in certain
events, including, without duplication: (a) dividends (and other
distributions) in any class of Continental common stock, (b) the
issuance to all holders of any class of Continental common stock
of rights, options or warrants entitling them to subscribe for or
purchase any class of Continental common stock at less than the
then current market price (determined as of the record date for
stockholders entitled to receive such rights, option or warrants)
of such common stock, (c) subdivisions, combinations and
reclassifications of any class of Continental common stock, (d)
distributions to all holders of any class of Continental common
stock of evidences of indebtedness of the Company, shares of
capital stock, cash or assets (including securities, but
excluding those dividends, rights, options, warrants and
distributions referred to above, dividends and distributions paid
exclusively in cash and mergers and consolidations to which the
next succeeding paragraph applies), (e) distributions consisting
exclusively of cash (excluding any cash portion of distributions
referred to in (d) above, or cash distributed upon a merger or
consolidation to which the next succeeding paragraph applies) to
all holders of any class of Continental common stock in an
aggregate amount that, combined together with (i) other such all-
cash distributions made within the preceding 12 months in respect
of which no adjustment has been made and (ii) any cash and the
fair market value of other consideration payable in respect of
any tender offer (of the type described in (f) below) by the
Company or any of its subsidiaries for any class of Continental
common stock concluded within the preceding 12 months in respect
of which no adjustment has been made, exceeds 15% of the
Company's market capitalization (for this purpose being the
product of the Current Market Price per share of the Class B
common stock on the record date for such distribution times the
number of shares of all classes of Continental's common stock
outstanding) on such date, and (f) payments to holders of any
class of Continental common stock in respect of a tender or
exchange offer (other than an odd-lot offer) by Continental or
any subsidiary of Continental for Continental common stock at a
price in excess of 110% of the Current Market Price per share of
such common stock on the trading day next succeeding the last
date tenders or exchanges may be made pursuant to such tender or
exchange offer. The Company reserves the right to make such
reductions in the conversion price in addition to those required
in the foregoing provisions as it considers to be advisable in
order that any event treated for federal income tax purposes as a
dividend of stock or stock rights will not be taxable to the
recipients. No adjustment of the conversion price will be
required to be made until the cumulative adjustments amount to
1.0% or more of the conversion price. (Section 12.4) Notices of
any adjustments to the conversion price pursuant to this
paragraph will be given as provided under "-Notices". (Section
12.5)
In case of any consolidation or merger of the Company with
or into another Person or any merger of another Person into the
Company (other than a merger which does not result in any
reclassification, conversion, exchange or cancellation of the
Class B common stock), or in case of any sale or transfer of all
or substantially all of the assets of the Company, each Note then
outstanding will, without the consent of the Holder of any Note
or coupon, become convertible only into the kind and amount of
securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number
of shares of Class B common stock into which such Note was
convertible immediately prior thereto (assuming such holder of
Class B common stock failed to exercise any rights of election
and that such Note was then convertible). (Section 12.11)
If at any time the Company makes a distribution of property
to its stockholders that would be taxable to such stockholders as
a dividend for federal income tax purposes (e.g., distributions
of evidences of indebtedness or assets of the Company, but
generally not stock dividends on common stock or rights to
subscribe for common stock) and, pursuant to the anti-dilution
provisions of the Indenture, the number of shares into which
Notes are convertible is increased, such increase may be deemed
for federal income tax purposes to be the payment of a taxable
dividend to Holders of Notes. See "United States Taxation-United
States Holders-Adjustments in Conversion Price".
Subordination
The payment of the principal of, premium, if any, and
interest on, and the redemption or repurchase of, the Notes and
coupons will be subordinated in right of payment to the extent
set forth in the Indenture to the prior payment in full of the
principal of, premium, if any, interest and other amounts in
respect of all Senior Indebtedness of the Company. The principal
amount of outstanding Senior Indebtedness was approximately $1.5
billion at June 30, 1996. Senior Indebtedness includes, with
respect to Continental, (i) the principal, premium, if any,
interest and other amounts in respect of (A) indebtedness of such
obligor for money borrowed and (B) indebtedness evidenced by
securities, debentures, bonds or other similar instruments issued
by such obligor, (ii) all capital lease obligations of such
obligor, (iii) all obligations of such obligor issued or assumed
as the deferred purchase price of property, all conditional sale
obligations of such obligor and all obligations of such obligor
under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business), (iv) all
obligations of such obligor for the reimbursement on any letter
of credit, bankers acceptance, security purchase facility or
similar credit transaction, (v) all obligations of the type
referred to in clauses (i) through (iv) above of other persons
for the payment of which such obligor is responsible or liable as
obligor, guarantor or otherwise, and (vi) all obligations of the
type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of such
obligor (whether or not such obligation is assumed by such
obligor), except for (1) any such indebtedness or other
obligation that is by its terms subordinated to or pari passu
with the Notes and (2) any indebtedness between or among such
obligor and its affiliates, including all other debt securities
and guarantees in respect of those debt securities, initially
issued to any other trust, or a trustee of such trust,
partnership or other entity affiliated with Continental that,
directly or indirectly, is a financing vehicle of Continental (a
"financing entity") in connection with the issuance by such
financing entity of preferred securities or other securities that
rank pari passu with, or junior to, the Notes. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be
entitled to the benefits of the subordination provisions
irrespective of any amendment, modification or waiver of any term
of such Senior Indebtedness. The payment of the principal of,
premium, if any, and interest on the Notes and coupons shall rank
senior in right of payment to the Company's guarantee of payments
under the 8 1/2% Convertible Trust Originated Preferred
Securities issued by Continental Airlines Finance Trust and the
Company's 8 1/2% Convertible Subordinated Deferrable Interest
Debentures due 2020. (Sections 13.1 and 13.2)
No payment on account of principal of, premium, if any, or
interest on, or redemption or repurchase of, the Notes or any
coupon may be made by the Company if there is a default in the
payment of principal, premium, if any, or interest (including a
default under any repurchase or redemption obligation) or other
amounts with respect to any Senior Indebtedness or if any other
event of default with respect to any Senior Indebtedness,
permitting the holders thereof to accelerate the maturity
thereof, shall have occurred and shall not have been cured or
waived or shall not have ceased to exist after written notice to
the Company and the Trustee by any holder of Senior Indebtedness.
Upon any acceleration of the principal due on the Notes or
payment or distribution of assets of the Company to creditors
upon any dissolution, winding up, liquidation or reorganization,
whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal, premium, if
any, and interest or other amounts due on all Senior Indebtedness
must be paid in full before the Holders of the Notes are entitled
to receive any payment. By reason of such subordination, in the
event of insolvency, creditors of the Company who are holders of
Senior Indebtedness may recover more, ratably, than the Holders
of the Notes, and such subordination may result in a reduction or
elimination of payments to the Holders of the Notes. (Section
13.2)
In addition, the Notes will be structurally subordinated to
all indebtedness and other liabilities (including trade payables
and lease obligations) of the Company's subsidiaries, as any
right of the Company to receive any assets of its subsidiaries
upon their liquidation or reorganization (and the consequent
right of the Holders of the Notes to participate in those assets)
will be effectively subordinated to the claims of that
subsidiary's creditors (including trade creditors), except to the
extent that the Company itself is recognized as a creditor of
such subsidiary, in which case the claims of the Company would
still be subordinate to any security interest in the assets of
such subsidiary and any indebtedness of such subsidiary senior to
that held by the Company. As of June 30, 1996, there was
outstanding approximately $312.8 million of indebtedness of
subsidiaries of the Company (excluding intercompany
indebtedness); this amount has been included in the principal
amount of Continental's outstanding Senior Indebtedness at June
30, 1996, as set forth above.
The Indenture does not limit the Company's ability to incur
Senior Indebtedness or the ability of the Company or its
subsidiaries to incur any other indebtedness.
Redemption
Optional Redemption
Subject to the discussion under "-Redemption for Taxation
Reasons" below, the Notes may not be redeemed at the option of
the Company prior to April 15, 1999. Thereafter, the Notes may
be redeemed, in whole or in part, at the option of the Company,
at the redemption prices specified below, upon not less than 30
nor more than 60 days' prior notice as provided under "-Notices"
below.
The redemption prices (expressed as a percentage of
principal amount) are as follows for the 12-month period
beginning on April 15 of the following years:
Year Redemption Price
---- ----------------
1999 104.725
2000 104.050
2001 103.375
2002 102.700
2003 102.025
2004 101.350
2005 100.675
and thereafter at a Redemption Price equal to 100% of the
principal amount, in each case together with accrued interest to
the date of redemption. (Sections 2.2, 11.1, 11.5, 11.7)
Redemption for Taxation Reasons
If the Company has or will become obligated to pay
Additional Amounts (as described below under "-Payment of
Additional Amounts") as a result of any change in, or amendment
to, the laws (including any regulations or rulings promulgated
thereunder) of the United States or any political subdivision or
taxing authority thereof or therein affecting taxation, or any
change in, or amendment to, the application or official
interpretation of such laws, regulations or rulings (any such
change or amendment being herein referred to as a "Tax Law
Change"), and such obligation cannot be avoided by the Company
taking reasonable measures available to it, the Tax Affected
Notes may be redeemed, at the option of the Company, in whole but
not in part. With respect to any Tax Law Change, "Tax Affected
Notes" shall include any Registered Note that, on or before the
30th day after the date on which the Company publishes a notice
of redemption pursuant to this paragraph, is delivered to the
Trustee together with a written statement from or on behalf of
the beneficial owner of such Registered Note to the effect that
such beneficial owner has or will become entitled to receive
Additional Amounts as a result of such Tax Law Change. Such
redemption shall be upon not less than 30 nor more than 60 days'
prior notice as provided under "-Notices" below, at a redemption
price equal to 100% of the principal amount of the Notes, plus
accrued interest to the redemption date and any Additional
Amounts then payable; provided, however, that (1) no such notice
of redemption shall be given earlier than 90 days prior to the
earliest date on which the Company would be obligated to pay any
such Additional Amounts were a payment in respect of the Notes
then due and (2) at the time such notice of redemption is given,
the obligation to pay such Additional Amounts remains in effect.
Prior to the publication of any notice of redemption pursuant to
this paragraph, the Company shall deliver to the Trustee (a) a
certificate stating that the Company is entitled to effect such
redemption and setting forth a statement of facts showing that
the conditions precedent to the right of the Company so to redeem
have occurred and (b) an opinion of independent counsel of
recognized standing, to the effect that the Company has or will
become obligated to pay such Additional Amounts as a result of a
Tax Law Change.
Payment and Conversion
The principal of the Registered Notes will be payable in
U.S. dollars, against surrender thereof at the Corporate Trust
Office of the Trustee in the Borough of Manhattan, The City of
New York, or, subject to any applicable laws and regulations, at
the office of any Paying Agent, by dollar check drawn on, or by
transfer to a dollar account (such transfer to be made only to
Holders of an aggregate principal amount of Registered Notes in
excess of U.S.$2,000,000) maintained by the Holder with, a bank
in New York City. Payment of any installment of interest on
Registered Notes will be made to the Person in whose name such
Registered Notes (or any predecessor Note) are registered at the
close of business on the April 1 or October 1 (whether or not a
Business Day) immediately preceding the relevant Interest Payment
Date (a "Regular Record Date"). Payments of such interest will
be made by a dollar check drawn on a bank in New York City mailed
to the Holder at such Holder's registered address or, upon
application by the Holder thereof to the Trustee not later than
the applicable Regular Record Date, by transfer to a dollar
account (such transfer to be made only to Holders of an aggregate
principal amount of Registered Notes in excess of U.S.$2,000,000)
maintained by the Holder with a bank in New York City. No
transfer to a dollar account will be made unless the Trustee has
received written wire instructions not less than 15 days prior to
the relevant payment date. (Section 2.2)
Any payment on the Notes due on any day which is not a
Business Day need not be made on such day, but may be made on the
next succeeding Business Day with the same force and effect as if
made on such due date, and no interest shall accrue on such
payment for the period from and after such date. "Business Day",
when used with respect to any place of payment, place of
conversion or any other place, as the case may be, means each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in such place of payment, place
of conversion or other place, as the case may be, are authorized
or obligated by law or executive order to close; provided,
however, that a day on which banking institutions in New York,
New York or London, England are authorized or obligated by law or
executive order to close shall not be a Business Day for certain
purposes. (Sections 1.1 and 2.2)
Registered Notes may be surrendered for conversion at the
Corporate Trust Office of the Trustee in the Borough of
Manhattan, The City of New York and, subject to any applicable
laws and regulations, at the office of any Conversion Agent
outside the United States. Registered Notes surrendered for
conversion must be accompanied by appropriate notices and any
payments in respect of interest or taxes, as applicable, as
described above under "-Conversion Rights". (Sections 2.2 and
12.2)
The Company has initially appointed as Paying Agents and
Conversion Agents, Bankers Trust Company, 1 Appold Street,
Broadgate, London EC2A 2HE, Bankers Trust Luxembourg S.A., 14
Boulevard F.D. Roosevelt, L-2450 Luxembourg, and Swiss Bank
Corporation, Paradeplatz 6, Ch-8010 Zurich, Switzerland. The
Company may at any time terminate the appointment of any Paying
Agent or Conversion Agent and appoint additional or other Paying
Agents and Conversion Agents, provided that until the Notes have
been delivered to the Trustee for cancellation, or moneys
sufficient to pay the principal of, premium, if any, and interest
on the Notes have been made available for payment and either paid
or returned to the Company as provided in the Indenture, it will
maintain an office or agency in the Borough of Manhattan, The
City of New York for surrender of Registered Notes for
conversion, and in a Western European city (which, so long as the
Notes are listed on the Luxembourg Stock Exchange and the rules
of the Luxembourg Stock Exchange shall so require, will be
Luxembourg) for payments with respect to the Notes and for the
surrender of Notes for conversion. Notice of any such
termination or appointment and of any change in the office
through which any Paying Agent or Conversion Agent will act will
be given in accordance with "-Notices" below. (Section 10.2)
Interest payable on Registered Notes on any redemption date
or repurchase date that is an Interest Payment Date will be paid
to the Holders of record as of the immediately preceding Regular
Record Date. (Sections 11.7, 14.1 and 14.2)
All moneys deposited with the Trustee or any Paying Agent,
or then held by the Company, in trust for the payment of
principal of, premium, if any, or interest on any Notes which
remain unclaimed at the end of two years after such payment has
become due and payable will be repaid to the Company, and the
Holder of such Note or any coupon appertaining thereto will
thereafter look only to the Company for payment thereof.
(Section 10.3)
Payment of Additional Amounts
The Company will pay to the Holder of any Note who is a
United States Alien such additional amounts ("Additional
Amounts") as may be necessary in order that every net payment of
the principal of, premium, if any, and interest on such Note,
after deduction or withholding for or on account of any present
or future tax, assessment or governmental charge imposed upon or
as a result of such payment by the United States or any political
subdivision or taxing authority thereof or therein, will not be
less than the amount provided for in such Note to be then due and
payable; provided, however, that the foregoing obligation to pay
Additional Amounts will not apply to:
(a) any tax, assessment or other governmental charge
which would not have been so imposed but for (i) the
existence of any present or former connection between such
Holder (or between a fiduciary, settlor, beneficiary,
member, shareholder of or possessor of a power over such
Holder, if such Holder is an estate, a trust, a partnership
or a corporation) and the United States or any political
subdivision or taxing authority thereof or therein,
including, without limitation, such Holder (or such
fiduciary, settlor, beneficiary, member, shareholder or
possessor) being or having been a citizen or resident of the
United States or treated as a resident thereof, or being or
having been engaged in trade or business or present therein,
or having or having had a permanent establishment therein,
or (ii) such Holder's present or former status as a personal
holding company, a foreign personal holding company with
respect to the United States, or a foreign private
foundation or foreign tax exempt entity for United States
tax purposes, or a corporation which accumulates earnings to
avoid United States federal income tax;
(b) any tax, assessment or other governmental charge
which would not have been so imposed but for the
presentation by the Holder of such Notes for payment on a
date more than 15 days after the date on which such payment
became due and payable or the date on which payment thereof
is duly provided for, whichever occurs later;
(c) any estate, inheritance, gift, sales, transfer,
personal property or similar tax, assessment or governmental
charge;
(d) any tax, assessment or other governmental charge
which would not have been imposed but for the failure to
comply with any certification, identification or other
reporting requirements concerning the nationality,
residence, identity or connection with the United States of
the Holder or beneficial owner of such Note, if compliance
is required by statute or by regulation of the United States
as a precondition to relief or exemption from such tax,
assessment or other governmental charge;
(e) any tax, assessment or other governmental charge
which is payable otherwise than by deduction or withholding
from payments of principal of, premium, if any, or interest
on such Note;
(f) any tax, assessment or other governmental charge
imposed on a holder that actually or constructively owns 10%
or more of the total combined voting power of all classes of
stock of the Company entitled to vote or that is a
controlled foreign corporation related to the Company
through stock ownership;
(g) any tax, assessment or other governmental charge
required to be withheld by any Paying Agent from any payment
of the principal of, premium, if any, or interest on any
Note, if such payment can be made without such withholding
by any other Paying Agent in Western Europe;
(h) any tax, assessment or other governmental charge
imposed on a Holder that is a partnership or a fiduciary or
other than the sole beneficial owner of such payment, but
only to the extent that any beneficial owner or member of
the partnership or beneficiary or settlor with respect to
the fiduciary would not have been entitled to the payment of
Additional Amounts had the beneficial owner, member,
beneficiary or settlor directly been the Holder of the Note;
or
(i) any combination of items (a), (b), (c), (d), (e),
(f), (g) and (h). (Section 2.2)
Notwithstanding the foregoing, the Company shall not be obligated
to pay Additional Amounts in respect of payments becoming due on
the Notes more than 15 days after the redemption date for a
redemption described in the first paragraph under "-Redemption
for Taxation Reasons", except to the extent that the Company's
obligation to pay such Additional Amounts does not arise from the
Tax Law Change that resulted in such redemption.
As used in this section, "United States" means the United
States of America (including the States and the District of
Columbia), its territories, its possessions and other areas
subject to its jurisdiction and a "United States Alien" is any
person who, for United States federal income tax purposes, is a
foreign corporation, a nonresident alien individual, a
nonresident alien fiduciary of a foreign estate or trust, or a
foreign partnership one or more of the members of which is for
United States federal income tax purposes, a foreign corporation,
a nonresident alien individual or a nonresident alien fiduciary
of a foreign estate or trust. (Section 2.2)
Repurchase at Option of Holders Upon a Change in Control
If a Change in Control (as defined) occurs, each Holder of
Notes shall have the right, at the Holder's option, to require
the Company to repurchase all of such Holder's Notes, or any
portion of a Note that is $5,000 or an integral multiple of
$1,000 in excess thereof, on the date (the "Repurchase Date")
that is 45 days after the date of the Company Notice (as
defined), at a price equal to 100% of the principal amount of the
Notes to be repurchased (the "Repurchase Price"), together with
interest accrued to the Repurchase Date. (Section 14.1)
The Company may, at its option, in lieu of paying the
Repurchase Price in cash, pay the Repurchase Price in Class B
common stock valued at 95% of the average of the closing prices
of the Class B common stock for the five trading days ending on
and including the third trading day preceding the Repurchase
Date; provided that payment may not be made in Class B common
stock unless such stock is listed on a national securities
exchange or traded on the NASDAQ National Market System at the
time of payment. (Section 14.1)
Within 30 days after the occurrence of a Change in Control,
the Company is obligated to give to all Holders of the Notes
notice, as provided in the Indenture (the "Company Notice"), of
the occurrence of such Change in Control and of the repurchase
right arising as a result thereof. The Company must also deliver
a copy of the Company Notice to the Trustee. To exercise the
repurchase right, a Holder of Notes must deliver on or before the
30th day after the date of the Company Notice irrevocable written
notice to the Trustee of the Holder's exercise of such right,
together with the Notes with respect to which the right is being
exercised. At least two trading days prior to the Repurchase
Date, the Company must publish a notice in the manner described
above specifying whether the Company will pay the Repurchase
Price in cash or in Class B common stock. (Section 14.2)
A Change in Control shall be deemed to have occurred at such
time after the original issuance of the Notes as there shall
occur:
(i) the acquisition by any Person (including any
syndicate or group deemed to be a "person" under Section
13(d)(3) of the Exchange Act) of beneficial ownership,
directly or indirectly, through a purchase, merger or other
acquisition transaction or series of transactions, of shares
of capital stock of the Company entitling such Person to
exercise 50% or more of the total voting power of all shares
of capital stock of the Company entitled to vote generally
in elections of directors, other than any such acquisition
by (x) the Company, any subsidiary of the Company or any
employee benefit plan of the Company or (y) the Current
Principal Shareholders (as defined) or any syndicate or
group in which any Current Principal Shareholder has a
controlling interest, so long as the entities listed in this
clause (y) combined own, directly or indirectly, shares of
capital stock of the Company representing less than 60% of
the Company's common equity interests and less than 85% of
the total voting power of all shares of capital stock of the
Company entitled to vote generally in elections of
directors, in each case, determined on a fully-diluted
basis; or
(ii) any consolidation of the Company with, or merger
of the Company into, any other Person, any merger of another
Person into the Company, or any sale or transfer of all or
substantially all of the assets of the Company to another
Person (other than a merger (x) which does not result in any
reclassification, conversion, exchange or cancellation of
outstanding shares of capital stock of the Company or (y)
which is effected solely to change the jurisdiction of
incorporation of the Company and results in a
reclassification, conversion or exchange of outstanding
shares of Class B common stock into solely shares of common
stock);
provided, however, that a Change in Control shall not be deemed
to have occurred if either (a) the closing price per share of the
Class B common stock for any five trading days within the period
of 10 consecutive trading days ending immediately after the later
of the Change in Control or the public announcement of the Change
in Control (in the case of a Change in Control under clause (i)
above) or ending immediately before the Change in Control (in the
case of a Change in Control under clause (ii) above) shall equal
or exceed 105% of the conversion price of the Notes in effect on
each such trading day, or (b) all of the consideration (excluding
cash payments for fractional shares) in a transaction or
transactions constituting the Change in Control described in
clause (ii) above consists of shares of common stock traded on a
national securities exchange or quoted on the NASDAQ National
Market System and as a result of such transaction or transactions
the Notes become convertible solely into such common stock.
"Current Principal Shareholders" shall mean Air Partners, Air
Canada and any partners or affiliates thereof. (Section 14.3)
Rule 13e-4 under the Exchange Act requires the dissemination
of certain information to security holders in the event of an
issuer tender offer and may apply in the event that the
repurchase option becomes available to Holders of the Notes. The
Company will comply with this rule to the extent applicable at
that time.
The Company may, to the extent permitted by applicable law,
at any time purchase Notes in the open market or by tender at any
price or by private agreement. Any Note so purchased by the
Company may, to the extent permitted by applicable law and
subject to restrictions contained in the underwriting agreement
dated March 15, 1996 entered into between the Company and the
Underwriter, be re-issued or resold or may, at the Company's
option, be surrendered to the Trustee for cancellation. Any
Notes surrendered as aforesaid may not be re-issued or resold and
will be canceled promptly.
The foregoing provisions would not necessarily afford
Holders of the Notes protection in the event of highly leveraged
or other transactions involving the Company that may adversely
affect Holders.
Mergers and Sales of Assets by the Company
The Company may not consolidate with or merge into any other
Person or transfer or lease its properties and assets
substantially as an entirety to any Person unless (a) the Person
formed by such consolidation or into which the Company is merged
or the Person to which the properties and assets of the Company
are so transferred or leased shall be a corporation, limited
liability company, partnership or trust organized and existing
under the laws of the United States, any State thereof or the
District of Columbia and shall expressly assume the payment of
the principal of, premium, if any, and interest on the Notes and
coupons and the performance of the other covenants of the Company
under the Indenture, and (b) immediately after giving effect to
such transaction, no Event of Default, and no event that, after
notice or lapse of time or both, would become an Event of
Default, shall have occurred and be continuing. (Section 7.1)
Events of Default
The following will be Events of Default under the Indenture:
(a) failure to pay principal of or premium, if any, on any Note
or coupon when due, whether or not such payment is prohibited by
the subordination provisions of the Indenture; (b) failure to pay
any interest on any Note or coupon when due, continuing for 30
days, whether or not such payment is prohibited by the
subordination provision of the Indenture; (c) failure to perform
any other covenant of the Company in the Indenture, continuing
for 60 days after written notice as provided in the Indenture;
(d) default in respect of any indebtedness for money borrowed by
the Company that results in acceleration of the maturity of an
amount in excess of $75,000,000 of indebtedness if such
indebtedness is not discharged, or such acceleration is not
annulled, within 30 days after written notice as provided in the
Indenture; and (e) certain events of bankruptcy, insolvency or
reorganization. (Section 5.1) Subject to the provisions of the
Indenture relating to the duties of the Trustee in case an Event
of Default shall occur and be continuing, the Trustee will be
under no obligation to exercise any of its rights or powers under
the Indenture at the request or direction of any of the Holders,
unless such Holders shall have offered to the Trustee reasonable
indemnity. (Section 6.3) Subject to such provisions for the
indemnification of the Trustee, the Holders of a majority in
aggregate principal amount of the Outstanding Notes will have the
right to direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on the Trustee. (Section 5.12)
If an Event of Default shall occur and be continuing, either
the Trustee or the Holders of at least 25% in principal amount of
the Outstanding Notes may accelerate the maturity of all Notes;
provided, however, that after such acceleration, but before a
judgment or decree based on acceleration, the Holders of a
majority in aggregate principal amount of Outstanding Notes may,
under certain circumstances, rescind and annul such acceleration
if all Events of Default, other than the non-payment of
accelerated principal, have been cured or waived as provided in
the Indenture. (Section 5.2) For information as to waiver of
defaults, see "-Meetings, Modification and Waiver".
No Holder of any Note will have any right to institute any
proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the
Trustee written notice of a continuing Event of Default and the
Holders of at least 25% in aggregate principal amount of the
Outstanding Notes shall have made written request, and offered
reasonable indemnity, to the Trustee to institute such proceeding
as trustee, and the Trustee shall not have received from the
Holders of a majority in aggregate principal amount of the
Outstanding Notes a direction inconsistent with such request and
shall have failed to institute such proceeding within 60 days.
(Section 5.7) However, such limitations do not apply to a suit
instituted by a Holder of a Note for the enforcement of payment
of the principal of, premium, if any, or interest on such Note on
or after the respective due dates expressed in such Note or of
the right to convert such Note in accordance with the Indenture.
(Section 5.8)
The Company will be required to furnish to the Trustee
annually a statement as to the performance by the Company of
certain of its obligations under the Indenture and as to any
default in such performance. (Section 10.9)
Meetings, Modification and Waiver
The Indenture contains provision for convening meetings of
the Holders of Notes to consider matters affecting their
interests. (Article Nine).
Modifications and amendments of the Indenture may be made,
and certain past defaults by the Company may be waived, either
(i) with the written consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time
Outstanding or (ii) by the adoption of a resolution, at a meeting
of Holders of the Notes at which a quorum is present, by the
Holders of at least 66 2/3% in aggregate principal amount of the
Notes represented at such meeting. However, no such modification
or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, (a) change the Stated Maturity
of the principal of, or any installment of interest on, any Note,
(b) reduce the principal amount of, or the premium, if any, or
interest on, any Note, (c) reduce the amount payable upon a
redemption or mandatory repurchase, (d) modify the provisions
with respect to the repurchase right of the Holders in a manner
adverse to the Holders, (e) change the obligation of the Company
to pay Additional Amounts described above in a manner adverse to
the Holders, (f) change the place or currency of payment of
principal of, premium, if any, or interest on, any Note, (g)
impair the right to institute suit for the enforcement of any
payment on or with respect to any Note, (h) modify the obligation
of the Company to maintain an office or agency in New York City
and in a Western European city, (i) adversely affect the right to
convert Notes, (j) modify the subordination provisions in a
manner adverse to the Holders of the Notes, (k) reduce the above-
stated percentage of Outstanding Notes necessary to modify or
amend the Indenture, (l) reduce the percentage of aggregate
principal amount of Outstanding Notes necessary for waiver of
compliance with certain provisions of the Indenture or for waiver
of certain defaults, (m) reduce the percentage in aggregate
principal amount of Outstanding Notes required for the adoption
of a resolution or the quorum required at any meeting of Holders
of Notes at which a resolution is adopted, or (n) modify the
obligation of the Company to deliver information required under
Rule 144A to permit resales of Notes and Class B common stock
issuable upon conversion thereof in the event the Company ceases
to be subject to certain reporting requirements under the United
States securities laws (Sections 8.2 and 5.13). The quorum at
any meeting called to adopt a resolution will be persons holding
or representing a majority in aggregate principal amount of the
Notes at the time outstanding and, at any reconvened meeting
adjourned for lack of a quorum, 25% of such aggregate principal
amount. (Section 9.4)
The Holders of a majority in aggregate principal amount of
the Outstanding Notes may waive compliance by the Company with
certain restrictive provisions of the Indenture by written
consent. (Section 10.13) The Holders of a majority in aggregate
principal amount of the Outstanding Notes also may waive any past
default under the Indenture, except a default in the payment of
principal, premium, if any, or interest, by written consent.
(Section 5.13)
Registration Rights
In connection with the issuance and sale of the Notes to the
Underwriter (the "Original Offering") on March 26, 1996 (the
"Original Offering Date"), the Company entered into a
registration rights agreement with the Underwriter (the
"Registration Rights Agreement") pursuant to which the Company
agreed, at the Company's expense, for the benefit of the holders
of the Offered Securities, to (i) file with the Commission within
180 days after the Original Offering Date, a registration
statement (the "Shelf Registration Statement"), of which this
Prospectus forms a part, covering resales of the Offered
Securities, (ii) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the
Securities Act within 60 days after the date of filing of the
Shelf Registration Statement and (iii) use its best efforts to
keep effective the Shelf Registration Statement until three years
after the date it is declared effective or such earlier date as
all Offered Securities shall have been disposed of or on which
all Offered Securities held by persons that are not affiliates of
Continental may be resold without registration pursuant to Rule
144(k) under the Securities Act (the "Effectiveness Period").
The Company has agreed to provide to each holder of Offered
Securities copies of this Prospectus, notify each holder when the
Shelf Registration Statement has become effective and take
certain other actions as are required to permit public resales of
the Offered Securities. A holder of Offered Securities that
sells such Offered Securities pursuant to the Shelf Registration
Statement will be required to be named as a selling security
holder in the related prospectus and to deliver this Prospectus
to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales
and will be bound by the provisions of the Registration Rights
Agreement, including certain indemnification obligations.
If (i) on or prior to 180 days following the date of
original issuance of the Registered Notes, a Shelf Registration
Statement had not been filed with the Commission, or (ii) on or
prior to the 60th day following the filing of such Shelf
Registration Statement, such Shelf Registration Statement is not
declared effective (each, a "Registration Default"), additional
interest ("Liquidated Damages") will accrue on the Registered
Notes, from and including the day following such Registration
Default. Liquidated Damages will be paid semi-annually in
arrears, with the first semi-annual payment due on the first
interest payment date, as applicable, following the date on which
such Liquidated Damages begin to accrue, and will accrue at a
rate per annum equal to an additional one-quarter of one percent
(0.25%) of the principal amount, to and including the 90th day
following such Registration Default and one-half of one percent
(0.50%) thereof from and after the 91st day following such
Registration Default. In the event that the Shelf Registration
Statement ceases to be effective during the Effectiveness Period
for more than 60 days, whether or not consecutive, during any 12-
month period then the interest rate borne by the Registered Notes
will increase by an additional one-half of one percent (0.50%)
per annum from the 61st day of the applicable 12-month period
such Shelf Registration Statement ceases to be effective until
such time as the Shelf Registration Statement again becomes
effective.
Continental agreed in the Registration Rights Agreement to
use its best efforts to cause such shares of Class B common stock
issuable upon conversion of the Notes to be listed on the NYSE
upon effectiveness of the Shelf Registration Statement. The
shares of Class B common stock issuable upon conversion of the
Notes will be authorized, upon official notice of issuance, by
the NYSE.
This summary of certain provisions of the Registration
Rights Agreement does not purport to be complete, and reference
is made to the Registration Rights Agreement, a copy of which is
filed as an exhibit to the Registration Statement and is
available as described under "Available Information".
Transfer and Exchange
At the option of the Holder upon request confirmed in
writing, and subject to the terms of the Indenture, Registered
Notes will be exchangeable at any time into an equal aggregate
principal amount of Registered Notes of different authorized
denominations. See "-Form and Denomination". Registered Notes
may not be exchanged for Bearer Notes. (Section 3.5)
Registered Notes may be presented for registration of
transfer (with the form of transfer endorsed thereon duly
executed) or exchange, at the office of any transfer agent or at
the office of the security registrar, without service charge but,
in the case of a transfer, upon payment of any taxes and other
governmental charges as described in the Indenture. Any
registration of transfer or exchange will be effected upon the
transfer agent or the security registrar, as the case may be,
being satisfied with the documents of title and identity of the
person making the request, and subject to such reasonable
regulations as the Company may from time to time agree upon with
the transfer agents and the security registrar, all as described
in the Indenture. Registered Notes may be transferred in whole or
in part in authorized denominations. (Section 3.5)
The Company has initially appointed the Trustee as security
registrar and transfer agent, acting through its Corporate Trust
Office in New York City, and has appointed Bankers Trust Company
and Bankers Trust Luxembourg S.A. in London and Luxembourg,
respectively, as transfer agents. The Company reserves the right
to vary or terminate the appointment of the security registrar or
of any transfer agent or to appoint additional or other transfer
agents or to approve any change in the office through which any
security registrar or any transfer agent acts, provided that
there will at all times be a security registrar in and a transfer
agent in a Western European city (which, so long as the Notes are
listed on the Luxembourg Stock Exchange and the rules of the
Luxembourg Stock Exchange shall so require, will be Luxembourg).
(Sections 3.5 and 10.2)
In the event of a redemption of less than all of the Notes
(other than, in the case of Registered Notes, a redemption for
the reasons described in the second paragraph under "-Redemption-
Redemption for Taxation Reasons") for any of the reasons set
forth above under "-Redemption", the Company will not be required
(a) to register the transfer or exchange of Registered Notes for
a period of 15 days immediately preceding the date notice is
given identifying the serial numbers of the Notes called for such
redemption or (b) to register the transfer of or exchange any
Registered Note, or portion thereof, called for redemption.
Title
The Company, the Trustee, any Paying Agent and any
Conversion Agent may treat the registered owner (as reflected in
the Security Register) of any Registered Note as the absolute
owner thereof (whether or not such Note shall be overdue) for the
purpose of making payment and for all other purposes. (Section
2.2)
Notices
Notice to Holders of the Notes will be given by publication
in Authorized Newspapers (as set forth in the Indenture) in
London and, so long as the Notes are listed on the Luxembourg
Stock Exchange and the rules of the Luxembourg Stock Exchange
shall so require, in Luxembourg or, if publication in either
London or Luxembourg is not practical, in a Western European
city. Such publication is expected to be made in the Financial
Times and the Luxemburger Wort. Notices to Holders of Notes will
also be given by mail to the addresses of such Holders as they
appear in the Security Register. Such notices will be deemed to
have been given on the date of such publication or, if published
in such Authorized Newspapers on different dates, on the date of
the first such publication or on the date of such mailing, as the
case may be. (Sections 1.1 and 1.6)
Notice of a redemption of Notes will be given at least once
not less than 30 nor more than 60 days prior to the redemption
date (which notice shall be published in accordance with the
procedures described in the preceding paragraph, but shall be
irrevocable except as otherwise provided in the second paragraph
under "-Redemption-Redemption for Taxation Reasons") and will
specify the redemption date.
Governing Law
The Indenture and the Notes will be governed by and
construed in accordance with the laws of the State of New York,
United States of America. (Section 1.1)
The Trustee
In case an Event of Default shall occur (and shall not be
cured), the Trustee will be required to use the degree of care of
a prudent person in the conduct of his own affairs in the
exercise of its powers. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or
powers under the Indenture at the request of any of the Holders
of Notes, unless they shall have offered to the Trustee
reasonable security or indemnity. (Sections 6.1 and 6.3)
DESCRIPTION OF CAPITAL STOCK
The current authorized capital stock of the Company consists
of 50,000,000 shares of Class A common stock, 200,000,000 shares
of Class B common stock and 50,000,000 shares of Class D common
stock (such classes of common stock referred to collectively as
the "common stock"), and 10,000,000 shares of preferred stock,
$.01 par value (the "Preferred Stock"). On June 26, 1996, the
Company announced the Stock Split with respect to the Company's
Class A common stock and Class B common stock, which was
distributed on July 16, 1996 to stockholders of record as of July
2, 1996. As of July 31, 1996, there were 9,280,000 outstanding
shares of Class A common stock, 46,653,176 outstanding shares of
Class B common stock and 421,717 outstanding shares of Series A
12% Cumulative Preferred Stock.
Pursuant to the Reorganization (and giving effect to the
recent Stock Split), on April 27, 1993 the Company issued
3,800,000 shares of Class A common stock and 10,084,736 shares of
Class B common stock to a distribution agent for the benefit of
the Company's general unsecured nonpriority prepetition creditors
("Prepetition Creditors"). As of July 31, 1996, there remained
582,906 shares of Class A common stock, 1,524,548 shares of Class
B common stock (after giving effect to the recent Stock Split),
and approximately $1 million of cash available for distribution.
Pending resolution of certain disputed claims, a distribution
agent will continue to hold undistributed Class A common stock
and Class B common stock and will vote such shares of each class
pro rata in accordance with the vote of all other shares of such
class on any matter submitted to a vote of stockholders. Also
pursuant to the Reorganization (and giving effect to the recent
Stock Split), the Company issued 987,242 shares of Class B common
stock to its retirement plan.
The following summary description of capital stock
accurately describes the material matters with respect thereto,
but is not intended to be complete and reference is made to the
provisions of the Company's Certificate of Incorporation and
Bylaws and the agreements referred to in this summary
description. As used in this section, except as otherwise stated
or required by context, each reference to Air Canada or Air
Partners includes any successor by merger, consolidation or
similar transaction and any wholly owned subsidiary of such
entity or such successor.
Common Stock-All Classes
Holders of common stock of all classes participate ratably
as to any dividends or distributions on the common stock, except
that dividends payable in shares of common stock, or securities
to acquire common stock, are paid in common stock, or securities
to acquire common stock, of the same class as that upon which the
dividend or distribution is being paid. Upon any liquidation,
dissolution or winding up of the Company, holders of common stock
of all outstanding classes are entitled to share ratably the
assets of the Company available for distribution to the
stockholders, subject to the prior rights of holders of any
outstanding Preferred Stock. Holders of common stock have no
preemptive, subscription, conversion or redemption rights (other
than the conversion rights of holders of Class A common stock
described under "-Class B Common Stock and Class A Common Stock"
and the anti-dilution rights described under "-Corporate
Governance and Control"), and are not subject to further calls or
assessments. Holders of common stock have no right to cumulate
their votes in the election of directors. All classes of common
stock vote together as a single class, subject to the right to a
separate class vote in certain instances required by law and to
the rights of holders of Class D common stock to vote separately
as a class to elect directors as described under "-Special
Classes of Common Stock."
Class B Common Stock and Class A Common Stock
The holders of Class B common stock are entitled to one vote
per share, and the holders of Class A common stock are entitled
to ten votes per share, on all matters submitted to a vote of
stockholders, except that voting rights of non-U.S. citizens are
limited as set forth below under "-Limitation on Voting by
Foreign Owners" and no holder of Class D common stock can vote
any of its Class B common stock for the election of directors
(see "-Special Classes of Common Stock").
Air Canada and Air Partners owned as of July 31, 1996 in the
aggregate approximately 19.8% of the outstanding Class A common
stock and Class B common stock, representing approximately 43.3%
of total voting power (excluding the exercise of warrants held by
Air Partners) and Air Partners has warrants to acquire an
additional 6,765,264 shares of Class B common stock and 3,039,468
shares of Class A common stock (together representing
approximately 21% of total voting power, assuming exercise of
such warrants).
At any time after January 1, 1997, shares of Class A common
stock may be freely converted into an equal number of shares of
Class B common stock. Because the Class A common stock has ten
votes per share and the Class B common stock has one vote per
share, any such conversion would effectively increase the
relative voting power of those Class A stockholders who do not
convert.
Limitation on Voting by Foreign Owners
The Company's Certificate of Incorporation defines "Foreign
Ownership Restrictions" as "applicable statutory, regulatory and
interpretive restrictions regarding foreign ownership or control
of U.S. air carriers (as amended or modified from time to time)."
Such restrictions currently require that no more than 25% of the
voting stock of the Company be owned or controlled, directly or
indirectly, by persons who are not U.S. Citizens ("Foreigners")
for purposes of the Foreign Ownership Restrictions, and that the
Company's president and at least two-thirds of its other managing
officers and directors be U.S. Citizens. For purposes of the
Certificate of Incorporation, "U.S. Citizen" means (i) an
individual who is a citizen of the United States; (ii) a
partnership each of whose partners is an individual who is a
citizen of the United States; or (iii) a corporation or
association organized under the laws of the United States or a
State, the District of Columbia, or a territory or possession of
the United States, of which the president and at least two-thirds
of the board of directors and other managing officers are
citizens of the United States, and in which at least 75% of the
voting interest is owned or controlled by persons that are
citizens of the United States. The Certificate of Incorporation
provides that no shares of capital stock may be voted by or at
the direction of Foreigners, unless such shares are registered on
a separate stock record (the "Foreign Stock Record") maintained
by the Company for the registration of ownership of voting stock
by Foreigners. The Company's Bylaws further provide that no
shares will be registered on the Foreign Stock Record if the
amount so registered would exceed the Foreign Ownership
Restrictions or adversely affect the Company's operating
certificates or authorities. Registration on the Foreign Stock
Record is made in chronological order based on the date the
Company receives a written request for registration, except that
certain shares acquired by Air Partners in connection with its
original investment in the Company that are subsequently
transferred to any Foreigner are entitled to be registered prior
to, and to the exclusion of, other shares. Shares currently
owned by Air Canada and registered on the Foreign Stock Record
constitute a portion of the shares that may be voted by
Foreigners under the Foreign Ownership Restrictions.
Corporate Governance and Control
Board of Directors
The Certificate of Incorporation provides that the Company's
Board of Directors shall consist of such number of directors as
may be determined from time to time by the Board of Directors in
accordance with the Bylaws. The Board of Directors currently
consists of 12 directors to be elected by holders of common
stock, subject to the rights of holders of preferred stock to
elect additional directors as set forth in any preferred stock
designation.
Business Combinations
The Certificate of Incorporation provides that the Company
is not governed by Section 203 of the General Corporation Law of
Delaware that, in the absence of such provisions, would have
imposed additional requirements regarding mergers and other
business combinations.
Anti-dilution Rights of Air Partners
Pursuant to the Certificate of Incorporation, Air Partners
has the right to purchase from the Company additional shares of
Class B common stock to the extent necessary to maintain its pro
rata ownership of the outstanding Class B common stock. Such
anti-dilution rights terminate as to Air Partners if the total
voting power of the common stock beneficially owned by it is less
than 20% of the total voting power of all of the outstanding
common stock. Because Air Partners currently does not own any
Class B common stock, such anti-dilution rights are not
operative.
Procedural Matters
The Company's Bylaws require stockholders seeking to
nominate directors or propose other matters for action at a
stockholders' meeting to deliver notice thereof to the Company
certain specified periods in advance of the meeting and to follow
certain other specified procedures.
Change in Control
The cumulative effect of the provisions of the Certificate
of Incorporation and Bylaws referred to under this section
"Description of Capital Stock," and the Stockholders' Agreement
is to maintain certain rights of Air Partners to elect directors
and otherwise to preserve its relative ownership and voting
positions. These provisions may have the effect of delaying,
deferring or preventing a change in control of the Company.
Special Class of Common Stock
The Certificate of Incorporation authorizes Class D common
stock as a mechanism to provide, under certain circumstances, a
specified level of Board representation for Air Partners. No
shares of Class D common stock are currently outstanding, and
they may only be issued in limited circumstances upon conversion
of Class A common stock held by Air Partners. Air Partners has
the option, which may be exercised only once, to convert all (but
not less than all) shares of Class A common stock held by it into
an equal number of shares of Class D common stock. Such right of
conversion is further conditioned upon Air Partners' holding
common stock having at least 20% of the total voting power of all
classes of common stock.
After such conversion, Air Partners is entitled to elect
one-third of the number of directors determined by the Board of
Directors pursuant to the Bylaws (rounded to the nearest whole
number), voting as a separate class. When shares of Class D
common stock are outstanding, Air Partners may not vote any of
its shares of Class B common stock for the election of directors;
and if Air Partners becomes the beneficial owner of any
additional shares of Class A common stock during such time, such
shares will automatically be converted into Class D common stock.
Each share of Class D common stock has ten votes and, as to
matters other than the election of directors, votes together with
all other classes of common stock as a single class. In the
event the voting power of all common stock held by Air Partners
represents less than 20% of the voting power of all classes of
common stock, all Class D common stock held by Air Partners will
automatically convert into an equal number of shares of Class A
common stock. Shares of Class D common stock also convert
automatically into an equal number of shares of Class A common
stock upon the transfer of record or beneficial ownership of such
Class D common stock to any person other than certain related
parties of the original holder. Air Partners may also at any
time voluntarily convert all (but not less than all) shares of
Class D common stock held by it into an equal number of shares of
Class A common stock. All shares of Class D common stock
surrendered by Air Partners for conversion into Class A common
stock will be canceled and may not be reissued.
Redeemable Preferred Stock
The Company has authorized and issued a class of preferred
stock, designated as Series A 12% Cumulative Preferred Stock.
Holders of the Series A 12% Preferred are entitled to
receive, when, as and if declared by the Board of Directors,
cumulative dividends payable quarterly in additional shares of
such preferred stock for dividends accumulating through December
31, 1996. Thereafter dividends are payable in cash at an annual
rate of $12 per share; provided, however, that to the extent net
income (as defined in the certificate of designation for the
preferred stock) for any calendar quarter is less than the amount
of dividends due on all outstanding shares of the Series A 12%
Preferred for such quarter, the Board of Directors may declare
dividends payable in additional shares of Series A 12% Preferred
in lieu of cash. At any time, the Company may redeem, in whole
or in part, on a pro rata basis among the stockholders, any
outstanding shares of the Series A 12% Preferred. All
outstanding shares of the Series A 12% Preferred are mandatorily
redeemable on April 27, 2003 out of legally available funds. The
redemption price is $100 per share plus accrued and unpaid
dividends. Shares of the Series A 12% Preferred are not
convertible into shares of common stock and such shares do not
have voting rights, except under limited circumstances described
in the following two paragraphs. Shares of the Series A 12%
Preferred have a liquidation preference of $100 per share plus
accrued and unpaid dividends, senior to any distribution on
shares of common stock.
In the event the Company violates certain covenants set
forth in the certificate of designation relating to the Series A
12% Preferred, or fails to pay the full amount of dividends on
the preferred stock for nine consecutive quarterly payment dates
or shall not have redeemed the preferred stock within five days
of the date of any redemption of which the Company has given, or
is required to give, notice (a "Default"), the holders of the
Series A 12% Preferred as to which a Default exists, voting
(subject to the Foreign Ownership Restrictions) together as one
class, are entitled to elect one member of the Board of
Directors. In the event the Company pays in full all dividends
accrued on the preferred stock for three consecutive payment
dates following such Default (and no dividend arrearages exist as
to such stock), or otherwise cures any other default that gives
rise to such voting rights, the holders of the Series A 12%
Preferred will cease to have the right to elect a director.
The consent or approval of the holders of a majority of the
then-outstanding shares of Series A 12% Preferred is required for
the creation of certain classes of senior or parity stock,
certain mergers or sales of substantially all of the Company's
assets, the voluntary liquidation or dissolution of the Company
and amendments to the terms of the preferred stock that would
adversely affect the Series A 12% Preferred.
The Board of Directors of the Company has the authority,
without any vote by the stockholders, to issue additional shares
of preferred stock, up to the number of shares authorized in the
Certificate of Incorporation, as it may be amended from time to
time, in one or more series, and to fix the number of shares
constituting any such series, the designations, preferences and
relative rights and qualifications of such series, including the
voting rights, dividend rights, dividend rate, terms of
redemption (including sinking fund provisions), redemption price
or prices, conversion rights and liquidation preferences of the
shares constituting any series.
Limitation of Director Liability and Indemnification
The Company's Certificate of Incorporation provides, to the
fullest extent permitted by Delaware law as it may from time to
time be amended, that no director shall be liable to the Company
or any stockholder for monetary damages for breach of fiduciary
duty as a director. As required under current Delaware law, the
Company's Certificate of Incorporation and Bylaws provide that
such waiver may not apply to liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law (governing
distributions to stockholders), or (iv) for any transaction from
which the director derived any improper personal benefit.
However, in the event the Delaware General Corporation Law is
amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability
of a director of the Company shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation
Law, as so amended. The Certificate of Incorporation further
provides that the Company will indemnify each of its directors
and officers to the full extent permitted by Delaware law and may
indemnify certain other persons as authorized by law. The
foregoing provisions do not eliminate any monetary liability of
directors under the federal securities laws.
UNITED STATES TAXATION
The following is a summary of certain United States federal
income and estate tax considerations relating to the purchase,
ownership and disposition of the Notes and of Class B common
stock into which Notes may be converted, but does not purport to
be a complete analysis of all the potential tax considerations
relating thereto. This summary is based on laws, regulations,
rulings and decisions now in effect, all of which are subject to
change. This summary deals only with holders that will hold
Notes and Class B common stock as capital assets and does not
address tax considerations applicable to investors that may be
subject to special tax rules, such as banks, tax-exempt
organizations, insurance companies, dealers in securities or
currencies, persons that will hold Notes or Class B common stock
as a part of an integrated investment (including a "straddle")
comprised of a Note or shares of Class B common stock and one or
more other positions, persons that have a "functional currency"
other than the U.S. dollar or holders of Notes that did not
acquire the Notes in the initial distribution thereof.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT
THEIR OWN TAX ADVISORS WITH RESPECT TO THE APPLICATION OF THE
UNITED STATES FEDERAL INCOME AND ESTATE TAX LAWS TO THEIR
PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES ARISING
UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION
OR UNDER ANY APPLICABLE TAX TREATY.
United States Holders
As used herein, the term "United States Holder" means a
holder of a Note who is a citizen or resident of the United
States, or that is a corporation, partnership or other entity
created or organized in or under the laws of the United States or
any political subdivision thereof or an estate or trust the
income of which is subject to United States federal income
taxation regardless of its source, and the term "United States"
means the United States of America (including the States and the
District of Columbia).
Payment of Interest
Interest on a Note generally will be includible in the
income of a United States Holder as ordinary income at the time
such interest is received or accrued, in accordance with such
Holder's method of accounting for United States federal income
tax purposes.
Sale, Exchange or Redemption of the Notes
Upon the sale, exchange or redemption of a Note, a United
States Holder generally will recognize capital gain or loss equal
to the difference between (i) the amount of cash proceeds and the
fair market value of any property received on the sale, exchange
or redemption (except to the extent such amount is attributable
to accrued interest income, which is taxable as ordinary income)
and (ii) such Holder's adjusted tax basis in the Note. A United
States Holder's adjusted tax basis in a Note generally will equal
the cost of the Note to such holder. Such capital gain or loss
will be long-term capital gain or loss if the Note was held for
more than one year at the time of sale, exchange or redemption.
Conversion of the Notes
A United States Holder generally will not recognize any
income, gain or loss upon conversion of a Note into Class B
common stock except with respect to cash received in lieu of a
fractional Share of Class B common stock. Such Holder's tax
basis in the Class B common stock received on conversion of a
Note will be the same as such Holder's adjusted tax basis in the
Note at the time of conversion (reduced by any basis allocable to
a fractional share interest), and the holding period for the
Class B common stock received on conversion will generally
include the holding period of the Note converted.
Cash received in lieu of a fractional share of Class B
common stock upon conversion will be treated as a payment in
exchange for the fractional share of Class B common stock.
Accordingly, the receipt of cash in lieu of a fractional share of
Class B common stock generally will result in capital gain or
loss (measured by the difference between the cash received for
the fractional share and the United States Holder's adjusted tax
basis in the fractional share).
Adjustment of Conversion Price
The conversion price of the Notes is subject to adjustment
in certain circumstances. Under Section 305(c) of the Internal
Revenue Code, adjustments that have the effect of increasing the
proportionate interest of holders of the Notes in the assets or
earnings of the Company (for example, an adjustment following a
distribution of property by the Company to its shareholders) may
in some circumstances give rise to deemed dividend income to
United States Holders; similarly, a failure to adjust the
conversion price of the Notes to reflect a stock dividend or
other event increasing the proportionate interest of the holders
of outstanding stock can in some circumstances give rise to
deemed dividend income to United States Holders of such stock.
Dividends
Dividends paid on the Class B common stock generally will be
includible in the income of a United States Holder as ordinary
income to the extent of the Company's current or accumulated
earnings and profits.
Sale or Other Disposition of Class B Common Stock
United States Holders generally will be subject to taxation
with respect to any gain recognized on the sale, exchange,
redemption or other disposition of shares of Class B common
stock. Such gain will be capital gain, and will be long-term
capital gain if the shares of Class B common stock were held for
more than one year.
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to
payments of principal, premium, if any, and of interest on a
Note, payments of dividends on Class B common stock and payments
of the proceeds of the sale of a Note or Class B common stock to
certain non-corporate United States Holders, and a 31% backup
withholding tax may apply to such payments if the United States
Holder (i) fails to furnish or certify his correct taxpayer
identification number to the payor in the manner required, (ii)
is notified by the Internal Revenue Service (the "IRS") that he
has failed to report payments of interest and dividends properly,
or (iii) under certain circumstances, fails to certify that he
has not been notified by the IRS that he is subject to backup
withholding for failure to report interest and dividend payments.
Any amounts withheld under the backup withholding rules from a
payment to a United States Holder will be allowed as a credit
against such holder's United States federal income tax liability
and may entitle the holder to a refund.
Non-United States Holders
Under current United States federal income and estate tax
law,
(a) payment on a Note or coupon by the Company or any
Paying Agent to a holder that is a United States Alien (as
defined under "Description of Notes-Payment of Additional
Amounts") will not be subject to withholding of United
States federal income tax, provided that, with respect to
payments of interest, (i) the beneficial owner does not
actually or constructively own 10 percent or more of the
combined voting power of all classes of stock of the Company
and is not a controlled foreign corporation related to the
Company through stock ownership and (ii) in the case of a
Registered Note, the beneficial owner provides a statement
signed under penalties of perjury that includes its name and
address and certifies that it is a United States Alien in
compliance with applicable requirements;
(b) a holder of a Note, coupon or Class B common stock
that is a United States Alien will not be subject to United
States federal income tax on gain realized on the sale,
exchange or redemption of the Note, coupon or Class B common
stock (including the receipt of cash in lieu of fractional
shares upon conversion of a Note into shares of Class B
common stock), unless such holder has a connection with or
status with respect to the United States described in clause
(a) under "Payment of Additional Interest";
(c) a Note or coupon will not be subject to United
States federal estate tax as a result of the death of a
holder who is not a citizen or resident of the United States
at the time of death, provided that such holder did not at
the time of death actually or constructively own 10 percent
or more of the combined voting power of all classes of stock
of the Company and, at the time of such holder's death,
payments of interest on such Note or coupon would not have
been effectively connected with the conduct by such holder
of a trade or business in the United States;
(d) except as described in clause (b) above with
respect to the receipt of cash in lieu of fractional shares
by certain holders upon conversion of a Note, no United
States federal income tax will be imposed upon the
conversion of a Note into shares of Class B common stock;
(e) dividends paid (or deemed paid, as described under
"United States Holders-Adjustment of Conversion Price") on
shares of Class B common stock held by a United States Alien
will be subject to withholding of United States federal
income tax at a 30 percent rate (or lower rate provided
under any applicable tax treaty, assuming the holder of the
Class B common stock satisfies any certification or
documentation requirements necessary to claim the benefits
of such treaty), unless the dividends are effectively
connected with the conduct by the United States Alien holder
of a trade or business in the United States, in which case
such dividends will be subject to United States federal
income tax at regular rates and will be exempt from the 30
percent withholding tax; and
(f) shares of Class B common stock held by an
individual at the time of his death (or previously
transferred subject to certain retained rights or powers)
will be subject to United States federal estate tax unless
otherwise provided by an applicable estate tax treaty.
United States information reporting requirements and backup
withholding tax will not apply to payments on a Registered Note
made by the Company or any Paying Agent to a holder that is a
United States Alien if the statement described in clause (a) of
the preceding paragraph is duly provided to the Trustee.
Payment on a Registered Note by the United States office of
a custodian, nominee or other agent of the beneficial owner of
such Registered Note will be subject to information reporting
requirements and backup withholding tax unless the beneficial
owner certifies its non-U.S. status under penalties of perjury or
otherwise establishes an exemption.
Information reporting requirements and backup withholding
tax will not apply to any payment of the proceeds of the sale of
a Note or shares of Class B common stock effected outside the
United States by a foreign office of a foreign "broker" (as
defined in applicable Treasury regulations), provided that such
broker (i) derives less than 50% of its gross income for certain
periods from the conduct of a trade or business in the United
States and (ii) is not a controlled foreign corporation for
United States federal income tax purposes. Payment of the
proceeds of the sale of a Note or shares of Class B common stock
effected outside the United States by a foreign office of any
other broker will not be subject to backup withholding tax, but
will be subject to information reporting requirements unless such
broker has documentary evidence in its records that the
beneficial owner is a United States Alien and certain other
conditions are met, or the beneficial owner otherwise establishes
an exemption. Payment of the proceeds of a sale of a Note or
shares of Class B common stock by the United States office of a
broker will be subject to information reporting requirements and
backup withholding tax unless the beneficial owner certifies its
non-U.S. status under penalties of perjury or otherwise
establishes an exemption.
Dividends on Class B common stock held by a United States
Alien will not be subject to information reporting requirements
or backup withholding tax if paid to an address outside the
United States.
On April 15, 1996, the Internal Revenue Service released
proposed revisions (the "Proposed Regulations") to the
regulations interpreting the withholding tax, information
reporting and backup withholding tax rules described above. The
Proposed Regulations would change in some respects the
requirements for providing the certification described in clause
(a) of the first paragraph above, including requiring that the
partners of a foreign partnership that is a holder of Notes
provide such certification and that such a partnership provide
certain information, including a U.S. taxpayer identification
number. (In the case of certain tiered partnerships, this rule
would be applied to the ultimate partners, on a look-through
basis.) The Proposed Regulations also would modify in certain
respects the information reporting and backup withholding tax
rules. In particular, these rules may apply to foreign
partnerships on a look-through basis and United States Aliens may
be required to comply with certain certification requirements in
order to establish an exemption from information reporting
requirements and backup withholding tax with respect to dividends
paid on Class B common stock.
The Proposed Regulations are proposed generally to be
effective for payments made after December 31, 1997. It is not
possible to predict whether, or in what form, the Proposed
Regulations ultimately will be adopted.
SELLING HOLDERS
The Registered Notes were originally issued by the Company
and sold by Goldman Sachs International (the "Underwriter"), in
transactions exempt from the registration requirements of the
Securities Act, to persons reasonably believed by such
Underwriters to be "qualified institutional buyers" (as defined
in Rule 144A under the Securities Act) or outside the United
States to non-U.S. persons in offshore transactions in reliance
on Regulation S under the Securities Act. The Selling Holders
may from time to time offer and sell pursuant to this Prospectus
any or all of the Registered Notes and Continental Class B common
stock issued upon conversion of such Notes. The term Selling
Holder includes the beneficial owners of the Registered Notes as
listed below and their transferees, pledgees, donees or other
successors.
The following table sets forth information with respect to
the Selling Holders and the respective principal amount of
Registered Notes beneficially owned by each Selling Holder as of
July 15, 1996 (except as otherwise set forth below) that may be
offered pursuant to this Prospectus. Such information has been
obtained from the Selling Holders and the Trustee. C.S. First
Boston Corporation, Lehman Brothers, Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Salomon Brothers Inc have in the
past provided to Continental and/or its affiliates investment
banking and investment advisory services for which they have
received customary fees, and may in the future provide such
services. Fidelity Devonshire Trust: Fidelity Equity-Income
Fund is advised by Fidelity Management & Research Company.
Fiedlity Management & Research Company and Fidelity Management
Trust Company each are wholly owned subsidiaries of FMR Corp., a
principal stockholder of the Company. As of July 31, 1996, FMR
Corp. held (including the Class B common stock issuable upon
conversion of the Registered Notes) approximately 14.3% of
Continental's outstanding Class B common stock and approximately
4.9% of the general voting power of its common stock. General
Electric Company and certain of its affiliates (which are related
to or affiliated with General Electric Pension Trust, GE S and S
Program Mutual Fund, GE Investments Group Trust, GE U.S. Equity
Fund, a Series of GE Funds, GE Investments Canada Fund, and GE
U.S. Equity Portfolio, a Series of Variable Investment Trust)
have or have had various business relationships with Continental
and its affiliates, including as a secured lender and a supplier
of certain equipment and services.
Principal Amount
Selling Holders of Registered Notes
The Income Fund of America, Inc. . . . . . . . . .$18,500,000
Oppenheimer Main Street Funds, Inc.
for the account of Oppenheimer Main
Street Income & Growth Fund . . . . . . . . . . .15,000,000
Fidelity Devonshire Trust: Fidelity
Equity-Income Fund (1) . . . . . . . . . . . . . 9,150,000
The Bond Fund of America, Inc. . . . . . . . . . . 7,500,000
Merrill Lynch, Pierce, Fenner
& Smith Incorporated (2). . . . . . . . . . . . . 5,938,000
OCM Convertible Trust. . . . . . . . . . . . . . . 5,355,000
General Electric Pension Trust . . . . . . . . . . 4,502,000
HBK Finance LP. (3) . . . . . . . . . . . . . . . 4,000,000
Nomura International PLC . . . . . . . . . . . . . 4,000,000
Swiss Reinsurance America Corporation (4). . . . . 4,000,000
State of Connecticut Combined Investment
Funds (5) . . . . . . . . . . . . . . . . . . . . 3,250,000
Van Kampen American Capital Harbor Fund. . . . . . 2,550,000
Oppenheimer Total Return Fund, Inc. . . . . . . . 2,000,000
GE S and S Program Mutual Fund . . . . . . . . . . 1,977,000
Common Sense Growth and Income Fund. . . . . . . . 1,975,000
Van Kampen American Capital Equity Income Fund . . 1,975,000
SAIF Corporation (6) . . . . . . . . . . . . . . . 1,945,000
Oregon Equity Fund (7) . . . . . . . . . . . . . . 1,800,000
C.S. First Boston Corporation. . . . . . . . . . . 1,625,000
Allstate Insurance Company . . . . . . . . . . . . 1,500,000
The Strategic Money Management Company B.V. . . . 1,300,000
Van Kampen American Capital Growth
and Income Fund . . . . . . . . . . . . . . . . . 1,180,000
HBK Securities Ltd. (8) (9) . . . . . . . . . . . 1,175,000
State Employees' Retirement Fund of the
State of Delaware (10) . . . . . . . . . . . . . 1,145,000
Salomon Brothers Inc . . . . . . . . . . . . . . . 1,050,000
Fidelity Management Trust Company on behalf of
accounts managed by it (11) . . . . . . . . . . . 850,000
Offshore Strategies, Ltd.. . . . . . . . . . . . . 750,000
Laterman Strategies 90's L.P. . . . . . . . . . . 700,000
Nomura Securities (Bermuda) Ltd. . . . . . . . . . 700,000
Employers Reinsurance Corporation. . . . . . . . . 599,000
GE Investments Group Trust . . . . . . . . . . . . 478,000
Van Kampen American Capital Convertible
Securities, Inc.. . . . . . . . . . . . . . . . . 450,000
Laterman & Co. . . . . . . . . . . . . . . . . . . 300,000
SwissRe Group - U.S. Employees Savings
Trust/Fixed Income Fund . . . . . . . . . . . . . 250,000
GE U.S. Equity Fund, a Series of GE Funds. . . . . 172,000
Oppenheimer Variable Account Funds for the account
of Oppenheimer Growth & Income Fund (12). . . . . 150,000
How & Co.. . . . . . . . . . . . . . . . . . . . . 135,000
Lehman Brothers, Inc.. . . . . . . . . . . . . . . 132,300
HBK Main Street Investments, L.P. (13) . . . . . . 125,000
Chrysler Corporation Master Retirement Trust . . . 90,000
Kapiolani Medical Center for Women & Children. . . 90,000
GE Investments Canada Fund . . . . . . . . . . . . 62,000
Her Majesty the Queen in Right of the
Province of Alberta as Represented
by the Provincial Treasurer . . . . . . . . . . . 60,000
Battelle Huntington National Pension Trust . . . . 58,000
Commonwealth Edison Pooled Fund. . . . . . . . . . 43,000
Kidder Peabody Group Inc. Retirement Plan for
Salaried and Commissioned Employees Trust . . . . 38,000
GE U.S. Equity Portfolio, a Series of
Variable Investment Trust . . . . . . . . . . . . 11,000
Delta Air Lines Master Trust . . . . . . . . . . . (14)
Minnesota State Board of Investment
Assigned Risk Plan. . . . . . . . . . . . . . . . (15)
Any other holder of Notes or future
transferee from any such holder . . . . . . . . .90,014,700
-----------
Total. . . . . . . . . . . . . . . . . . . . . .$200,650,000
===========
______________
(1) This entity is a portfolio of an investment company
registered under Section 8 of the Investment Company Act of
1940, as amended, or a private investment account advised by
Fidelity Management & Research Company ("FMR Co."). FMR Co.
is a Massachusetts corporation and an investment advisor
registered under Section 203 of the Investment Advisors Act
of 1940, as amended, and provides investment advisory
services to the entity mentioned above, and to other
registered investment companies and to certain other funds
which are generally offered to a limited group of investors.
FMR Co. is a wholly-owned subsidiary of FMR. Corp. ("FMR"),
a Massachusetts corporation.
(2) As of August 12, 1996, Merrill Lynch, Pierce, Fenner & Smith
Incorporated beneficially owned $2,788,000 in aggregate
principal amount of Registered Notes.
(3) As of August 6, 1996, HBK Finance LP. beneficially owned
$4,750,000 in aggregate principal amount of Registered
Notes.
(4) As of July 24, 1996, Swiss Reinsurance America Corporation
beneficially owned $8,000,000 aggregate principal amount of
Registered Notes.
(5) As of August 8, 1996, State of Connecticut Combined
Investment Funds beneficially owned $3,990,000 in aggregate
principal amount of Registered Notes equal.
(6) As of August 1, 1996, SAIF Corporation beneficially owned
$1,450,000 in aggregate principal amount of Registered
Notes.
(7) As of July 15, 1996, Oregon Equity Fund beneficially owned
an aggregate principal amount of Registered Notes equal to
$1,800,000 through Froley, Revy Inv. Co., Inc.--NAP & CO.
and BBNY - CEDE & CO.
(8) As of August 6, 1996, HBK Securities Ltd. beneficially owned
$3,450,000 in aggregate principal amount of Notes.
(9) As of July 15, 1996, Bear Stearns Securities Corp. was the
holder of record of $175,000 and Prime Dealer Services Inc.
was the holder of record of $1,000,000 of the $1,175,000 in
aggregate principal amount that was beneficially owned by
HBK Securities Ltd.; and as of August 6, 1996, Bear Stearns
Securities Corp. was the holder of record of $2,200,000 and
Prime Dealer Services Inc. was the holder of record of
$1,250,000 of the $3,450,000 in aggregate principal amount
that was beneficially owned by HBK Securities Ltd.
(10) As of August 8, 1996, State Employees' Retirement Fund of
the State of Delaware beneficially owned $1,405,000 in
aggregate principal amount of Registered Notes.
(11) Shares indicated as owned by such entity are owned directly
by various private investment accounts, primarily employee
benefit plans for which Fidelity Management Trust Company
("FMTC") serves as trustee or managing agent. FMTC is a
wholly-owned subsidiary of FMR and a bank (as defined in
Section 3(a)(6) of the Exchange Act).
(12) As of July 23, 1996, Oppenheimer Variable Account Funds for
the account of Oppenheimer Growth & Income Fund beneficially
owned $250,000 in aggregate principal amount of Registered
Notes.
(13) As of August 6, 1996, HBK Main Street Investments, L.P.
beneficially owned $5,600,000 in aggregate principal amount
of Registered Notes.
(14) As of August 8, 1996, Delta Air Lines Master Trust
beneficially owned $3,000,000 in aggregate principal amount
of Registered Notes.
(15) As of August 8, 1996, Minnesota State Board of Investment
Assigned Risk Plan beneficially owned $110,000 in aggregate
principal amount of Notes.
None of the other Selling Holders has, or within the past
three years has had, any position, office or other material
relationship with the Company or any of their predecessors or
affiliates, except as noted above. Because the Selling Holders
may, pursuant to this Prospectus, offer all or some portion of
the Registered Notes or the Continental Class B common stock
issuable upon conversion of such Notes, no estimate can be given
as to the amount of the Registered Notes or the Continental Class
B common stock issuable upon conversion of such Notes that will
be held by the Selling Holders upon termination of any such
sales. In addition, the Selling Holders identified above may
have sold, transferred or otherwise disposed of all or a portion
of their Registered Notes, since the date on which they provided
the information regarding such Notes, in transactions exempt from
the registration requirements of the Securities Act. See "Plan
of Distribution".
PLAN OF DISTRIBUTION
The Selling Holders may from time to time sell the Offered
Securities directly to purchasers or may from time to time offer
the Offered Securities to or through underwriters, broker/dealers
or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the
Selling Holders or the purchasers of such securities for whom
they may act as agents. The Selling Holders and any
underwriters, broker/dealers or agents that participate in the
distribution of Offered Securities may be deemed to be
"underwriters" within the meaning of the Securities Act and any
profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any
such underwriter, broker/dealer or agent may be deemed to be
underwriting discounts and commissions under the Securities Act.
The Offered Securities may be sold from time to time in one
or more transactions at fixed prices, at prevailing market prices
at the time of sale, at varying prices determined at the time of
sale or at negotiated prices. The sale of the Offered Securities
may be effected in transactions (which may involve crosses or
block transactions) (i) on any national securities exchange or
quotation service on which the Offered Securities may be listed
or quoted at the time of sale, (ii) in the over-the-counter
market, (iii) in transactions otherwise than on such exchanges or
in the over-the-counter market or (iv) through the writing of
options. At the time a particular offering of the Offered
Securities is made, a Prospectus Supplement, if required, will be
distributed which will set forth the aggregate amount and type of
Offered Securities being offered and the terms of the offering,
including the name or names of any underwriters, broker/dealers
or agents, any discounts, commissions and other terms
constituting compensation from the Selling Holders pertaining to
those securities sold by them and any discounts, commissions or
concessions allowed or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions,
if applicable, the Offered Securities will be offered or sold in
such jurisdictions only through registered or licensed brokers or
dealers. In addition, in certain jurisdictions the Offered
Securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any
exemption from registration or qualification is available and is
complied with.
Under the Exchange Act and applicable rules and regulations
promulgated thereunder, any person engaged in a distribution of
any of the Offered Securities may not simultaneously engage in
market making activities with respect to the Securities for a
period, depending upon certain circumstances, of either two days
or nine days prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the Selling Holders
will be subject to applicable provisions of the Exchange Act and
the rules and regulations promulgated thereunder, including
without limitation Rules 10b-6 and 10b-7, which provisions may
limit the timing of purchases and sales of any of the Offered
Securities by the Selling Holders. The foregoing may affect the
marketability of such securities.
Pursuant to the Registration Rights Agreement, all expenses
of the registration of the Offered Securities will be paid by the
Company, including, without limitation, Commission filing fees
and expenses of compliance with state securities or "blue sky"
laws; provided, however, that the Selling Holders will pay all
underwriting discounts and selling commissions pertaining to
those securities sold by them, if any. The Selling Holders will
be indemnified by the Company against certain civil liabilities,
including certain liabilities under the Securities Act, or will
be entitled to contribution in connection therewith. The Company
will be indemnified by the Selling Holders severally against
certain civil liabilities, including certain liabilities under
the Securities Act, or will be entitled to contribution in
connection therewith.
LEGAL MATTERS
The validity of the Notes and certain United States Federal
income taxation matters with respect to the Registered Notes and
Section 382 will be passed upon for the Company by Cleary,
Gottlieb, Steen & Hamilton, New York, New York and the validity
of any Continental Class B common stock issuable upon conversion
of the Notes will be passed upon for the Company by Jeffery A.
Smisek, General Counsel of Continental.
EXPERTS
The consolidated financial statements (including schedules)
of Continental Airlines, Inc. appearing in Continental Airlines,
Inc.'s Annual Report (Form 10-K) as of December 31, 1995 and
1994, and for the two years ended December 31, 1995 and the
period April 28, 1993 through December 31, 1993, and the
consolidated statements of operations, redeemable and non-
redeemable preferred stock and common stockholders' equity and
cash flows of Continental Airlines Holdings, Inc. for the period
January 1, 1993 through April 27, 1993, incorporated by reference
in this Prospectus, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference, in
reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
=================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY CONTINENTAL AIRLINES, INC. OR ANY OF ITS AGENTS, ANY SELLING
HOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF CONTINENTAL AIRLINES, INC. SINCE SUCH
DATE.
_______________
TABLE OF CONTENTS
Page
Available Information. . . . . . . . . . . . . . . 2
Incorporation of Certain Documents by Reference. . 2
Prospectus Summary . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . 7
Recent Developments. . . . . . . . . . . . . . . . 12
Ratio of Earnings to Fixed Charges . . . . . . . . 14
Use of Proceeds. . . . . . . . . . . . . . . . . . 14
Selected Financial Data. . . . . . . . . . . . . . 15
Description of Notes . . . . . . . . . . . . . . . 17
Description of Capital Stock . . . . . . . . . . . 31
United States Taxation . . . . . . . . . . . . . . 35
Selling Holders. . . . . . . . . . . . . . . . . . 38
Plan of Distribution . . . . . . . . . . . . . . . 42
Legal Matters. . . . . . . . . . . . . . . . . . . 42
Experts. . . . . . . . . . . . . . . . . . . . . . 43
=================================================================
=================================================================
$200,650,000
Continental Airlines, Inc.
6-3/4% Convertible Subordinated Notes Due April 15, 2006
PROSPECTUS
Dated , 1996
=================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with the distribution
of the securities being registered hereunder, other than
underwriting discounts and commissions, are:
Securities and Exchange Commission
registration filing fee. . . . . . . . . . .$ 69,189
Blue Sky qualification fees and
expenses, including legal fee. . . . . . . . --
Printing and engraving expenses . . . . . . . 1,000
Transfer agent and trustee fees and
expenses . . . . . . . . . . . . . . . . . . 5,000
Accounting fees and expenses. . . . . . . . . 4,000
Legal fees and expenses . . . . . . . . . . . 170,000
Miscellaneous . . . . . . . . . . . . . . . . 811
----------
Total. . . . . . . . . . . . . . . . . .$250,000
==========
Item 15. Indemnification of Directors and Officers of the
Company.
The Company's Certificate of Incorporation and Bylaws
provide that the Company will indemnify each of its directors and
officers to the full extent permitted by the laws of the State of
Delaware and may indemnify certain other persons as authorized by
the Delaware General Corporation Law (the "GCL"). Section 145 of
the GCL provides as follows:
"(a) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that
he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
(c) To the extent that a director, officer, employee or
agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b) of this section, or in defense of
any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of
this section (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in subsections
(a) and (b). Such determination shall be made (1) by a majority
vote of the board of directors who are not parties to such
action, suit or proceeding, even though less than a quorum, or
(2) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an
officer or director in defending any civil, criminal,
administrative, or investigative action, suit or proceeding may
be paid by the corporation in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be
indemnified by the corporation as authorized in this section.
Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other subsections of
this section shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
(g) A corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the corporation would
have the power to indemnify him against such liability under this
section.
(h) For purposes of this section, references to "the
corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have
had power and authority to indemnify its directors, officers, and
employees or agents, so that any person who is or was a director,
officer, employee or agent for such constituent corporation, or
is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under this section with respect to the
resulting or surviving corporation as he would have with respect
to such constituent corporation if its separate existence had
continued.
(i) For purposes of this section, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving
at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to
in this section.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive
jurisdiction to hear and determine all actions for advancement of
expenses or indemnification brought under this section or under
any bylaw, agreement, vote of stockholders or disinterested
directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses
(including attorneys' fees).
The Certificate of Incorporation and bylaws also limit the
personal liability of directors to the Company and its
stockholders for monetary damages resulting from certain breaches
of the directors' fiduciary duties. The bylaws of the Company
provide as follows:
"No Director of the Corporation shall be personally liable
to the Corporation or its stockholders for monetary damages for
breach of fiduciary duty as a Director, except for liability (i)
for any breach of the Director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the . . .
GCL, or (iv) for any transaction from which the Director derived
any improper personal benefit. If the GCL is amended to
authorize corporate action further eliminating or limiting the
personal liability of Directors, then the liability of Directors
of the Corporation shall be eliminated or limited to the full
extent permitted by the GCL, as so amended."
The Company maintains directors' and officers' liability
insurance.
Item 16. Exhibits.
Exhibit No. Exhibit Description
4.1** Indenture for the 6-3/4% Convertible Subordinated Notes,
dated as of March 26, 1996 between Continental Airlines,
Inc. and Bankers Trust Company, as Trustee
4.2** Form of 6-3/4% Convertible Subordinated Note (included in
Exhibit 4.1)
4.3** Form of First Supplemental Indenture
5.1** Opinion of Cleary, Gottlieb, Steen & Hamilton as to the
validity of the Notes registered hereby
5.2** Opinion of Jeffery A. Smisek, General Counsel of
Continental Airlines, Inc., as to the validity of the
Class B common stock being registered hereby
8.1** Opinion of Cleary, Gottlieb, Steen & Hamilton relating to
certain tax matters (included in Exhibit 5.1)
10.1** Registration Rights Agreement, dated March 26, 1996,
between Continental Airlines, Inc. and Goldman Sachs
International
12* Calculation of Ratio of Earnings to Fixed Charges
23.1* Consent of Ernst & Young LLP
23.2** Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibits 5.1)
23.3** Consent of Jeffery A. Smisek, General Counsel of
Continental Airlines, Inc. (included in his opinion filed
as Exhibit 5.2)
23.4** Consent of Cleary, Gottlieb, Steen & Hamilton
24.1** Powers of Attorney
25.1** Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Bankers Trust
Company
_____________
* Filed herewith
** Previously filed
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or
sales are being made, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of the
registration (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously
disclosed in the registration statement or any material
change to such information in the registration
statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) shall
not apply if the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to section 13 or section
15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-
effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
(b) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) Insofar as the indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(d) To the extent the registrant intends to rely on section
305(b)(2) of the Trust Indenture Act of 1939 for determining the
eligibility of the trustee under indentures for securities to be
used, offered or sold on a delayed basis by or on behalf of the
registrant, the undersigned registrant hereby undertakes to file
an application for the purpose of determining the eligibility of
the trustee to act under subsection (a) of section 310 of such
Act in accordance with the rules and regulations prescribed by
the Commission under section 305(b)(2) of such Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of
Texas, on August 12, 1996.
CONTINENTAL AIRLINES, INC.
By: /s/ Jeffery A. Smisek
-----------------------------
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933,
this Amendment No. 1 to the Registration Statement has been
signed by the following persons in the capacities indicated, on
August 12, 1996.
Signature Title
- - --------- -----
*
- - ----------------------
Gordon M. Bethune President, Chief Executive Officer
(Principal Executive Officer) and
Director
*
- - ----------------------
Lawrence W. Kellner Senior Vice President and Chief
Financial Officer (Principal Financial
Officer)
*
- - ----------------------
Michael P. Bonds Vice President and Controller
(Principal Accounting Officer)
*
- - ----------------------
Thomas J. Barrack, Jr. Director
*
- - ----------------------
David Bonderman Director
*
- - ----------------------
Gregory D. Brenneman Director
*
- - ----------------------
Patrick Foley Director
*
- - ----------------------
Douglas H. McCorkindale Director
*
- - ----------------------
George G.C. Parker Director
*
- - ----------------------
Richard W. Pogue Director
*
- - ----------------------
William S. Price III Director
*
- - ----------------------
Donald L. Sturm Director
*
- - ----------------------
Karen Hastie Williams Director
*
- - ----------------------
Charles A. Yamarone Director
*By: /s/ Scott R. Peterson
-----------------------------------
Scott R. Peterson, Attorney in fact
EXHIBIT INDEX
Exhibit No. Exhibit Description
4.1** Indenture for the 6-3/4% Convertible Subordinated Notes,
dated as of March 26, 1996 between Continental Airlines,
Inc. and Bankers Trust Company, as Trustee
4.2** Form of 6-3/4% Convertible Subordinated Note (included in
Exhibit 4.1)
4.3** Form of First Supplemental Indenture
5.1** Opinion of Cleary, Gottlieb, Steen & Hamilton as to the
validity of the Notes registered hereby
5.2** Opinion of Jeffery A. Smisek, General Counsel of
Continental Airlines, Inc., as to the validity of the
Class B common stock being registered hereby
8.1** Opinion of Cleary, Gottlieb, Steen & Hamilton relating to
certain tax matters (included in Exhibit 5.1)
10.1** Registration Rights Agreement, dated March 26, 1996,
between Continental Airlines, Inc. and Goldman Sachs
International
12* Calculation of Ratio of Earnings to Fixed Charges
23.1* Consent of Ernst & Young LLP
23.2** Consent of Cleary, Gottlieb, Steen & Hamilton (included in
its opinion filed as Exhibits 5.1)
23.3** Consent of Jeffery A. Smisek, General Counsel of
Continental Airlines, Inc. (included in his opinion filed
as Exhibit 5.2)
23.4** Consent of Cleary, Gottlieb, Steen & Hamilton
24.1** Powers of Attorney
25.1** Form T-1 Statement of Eligibility under the Trust
Indenture Act of 1939, as amended, of Bankers Trust
Company
_____________
* Filed herewith
** Previously filed
CONTINENTAL AIRLINES, INC. EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
Earnings:
Earnings (Loss) Before Income
Taxes, Minority Interest and
Extraordinary Items $ 206 $ 181 $ 301 $ 153
Plus:
Interest Expense (a) 42 56 89 110
Capitalized Interest -- (3) (1) (4)
Amort of Capitalized Interest -- 1 1 2
Portion of Rent Expense
Representative of Interest
Expense (a) 89 91 178 180
----- ----- ----- -----
Adjusted Earnings (Loss) 337 326 568 441
----- ----- ----- -----
Fixed Charges:
Interest Expense (a) 42 56 89 110
Portion of Rent Expense
Representative of Interest
Expense (a) 89 91 178 180
----- ----- ----- -----
Total Fixed Charges 131 147 267 290
----- ----- ----- -----
Coverage Adequacy (Deficiency) $ 206 $ 179 $ 301 $ 151
===== ===== ===== =====
Coverage Ratio 2.57 2.22 2.13 1.52
===== ===== ===== =====
Period from
Year Ended Reorganization
December 31, (April 28, 1993)
-------------- through
1995 1994 December 31, 1993
---- ---- -----------------
Earnings:
Earnings (Loss) Before Income
Taxes, Minority Interest and
Extraordinary Items $ 310 $(651) $ (52)
Plus:
Interest Expense (a) 213 241 165
Capitalized Interest (6) (17) (8)
Amort of Capitalized Interest 2 1 -
Portion of Rent Expense
Representative of Interest
Expense (a) 360 337 216
----- ----- -----
Adjusted Earnings (Loss) 879 (89) 321
----- ----- -----
Fixed Charges:
Interest Expense (a) 213 241 165
----- ----- -----
Portion of Rent Expense
Representative of Interest
Expense (a) 360 337 216
----- ----- -----
Total Fixed Charges 573 578 381
----- ----- -----
Coverage Adequacy (Deficiency) $ 306 $(667) $ (60)
===== ===== =====
Coverage Ratio 1.53 n/a n/a
===== ===== =====
Period from Year Ended
January 1, 1993 December 31,
through --------------
April 27, 1993 1992 1991
----------------- ---- ----
Earnings:
Earnings (Loss) Before Income
Taxes, Minority Interest and
Extraordinary Items $(977) $(125) $(304)
Plus:
Interest Expense (a) 52 153 174
Capitalized Interest (2) (6) (12)
Amort of Capitalized Interest - - -
Portion of Rent Expense
Representative of Interest
Expense (a) 117 324 333
----- ----- -----
Adjusted Earnings (Loss) (810) 346 191
----- ----- -----
Fixed Charges:
Interest Expense (a) 52 153 174
----- ----- -----
Portion of Rent Expense
Representative of Interest
Expense (a) 117 324 333
----- ----- -----
Total Fixed Charges 169 477 507
----- ----- -----
Coverage Adequacy (Deficiency) $(979) $(131) $(316)
===== ===== =====
Coverage Ratio n/a n/a n/a
===== ===== =====
(a) Includes Fair Market Value adjustments resulting from the Company's
emergence from bankruptcy in 1993.
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption
"Experts" in the Registration Statement (Form S-3) and related
Prospectus of Continental Airlines, Inc. for the registration of
$200,650,000 6 3/4% Convertible Subordinated Notes and to the
incorporation by reference therein of our reports dated February
12, 1996, with respect to the consolidated financial statements
and schedules of Continental Airlines, Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
Ernst & Young LLP
Houston, Texas
August 6, 1996